CONOLOG CORP, 424B3, 1996-11-15

CONOLOG CORP
424B3, 1996-11-15
ELECTRONIC COMPONENTS, NEC

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Filed Pursuant to Rule 424(b)(3)
Reg. No. 333-14247
Prospectus

CONOLOG CORPORATION

1,775,000 Shares of Common Stock

This Prospectus relates to the sale of 1,775,000 shares of common stock,
par value $1.00 per share, of Conolog Corporation, a Delaware corporation
("Conolog" or the "Company") all of which are being registered on behalf of CNL
Holdings, Inc., which holds an option to purchase such shares (1,400,000 of
which are issuable upon conversion of a Note) from The Chase Manhattan Bank. CNL
Holdings, Inc. is hereinafter referred to as "CNL" or the "Selling
Securityholder." See "Selling Securityholders and Plan of Distribution."

The Common Stock offered by this Prospectus may be sold from time to time
by the Selling Securityholder, or by its transferees. No underwriting
arrangements have been entered into by the Selling Securityholder. The
distribution of the securities by the Selling Securityholder may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transaction, privately negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerages fees or commissions may be paid by the
Selling Securityholder in connection with sales of such securities.

The Selling Securityholder and intermediaries through whom such securities
may be sold may be deemed "underwriters" within the meaning of the Securities
Act of 1933 as amended, with respect to the securities offered and any profits
realized or commissions received may be deemed underwriting compensation.

The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholder. However, pursuant to an agreement
between the Company and the Selling Securityholder, the Selling Securityholder
may loan funds, in certain circumstances, to the Company. All costs incurred in
the registration of the securities of the Selling Securityholder are being borne
by the Company. See "Selling Securityholder and Plan of Distribution" and
"Business - Credit Facility -- New Terms of Credit Facility and Agreement with
the Selling Securityholder."

On November 7, 1996, the closing price for the Common Stock as reported on
the Nasdaq SmallCap Market, was $3 3/8. See "Market Price for Common Stock and
Class A Warrants."

iii

<PAGE>

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. AN INVESTMENT IN THESE SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS

CAPABLE OF SUSTAINING THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
WHICH BEGIN ON PAGE 9.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is November 8, 1996

<PAGE>

PROSPECTUS SUMMARY

This summary is qualified in its entirety by the more detailed
information, financial statements and notes thereto appearing elsewhere in this
Prospectus and assumes (a) the filing of the Company's Certificate of Amendment
to its Certificate of Incorporation increasing the total number of authorized
shares to 22,000,000, of which 2,000,000 is classified as Preferred Stock and
20,000,000 as Common Stock which is scheduled to occur on or about November 19,
1996 and (b) the conversion of the Chase Manhattan Note into 1,400,000 shares of
Common Stock by the Selling Securityholder. See "Description of Securities,"
"Selling Securityholder and Plan of Distribution" and "Business-Credit
Facility."

The Company

Conolog Corporation, a Delaware corporation (the "Company" or "Conolog")
was organized in 1968 and is engaged in the design, manufacture (directly or
through subcontractors) and distribution of small electronic and electromagnetic
components and subassemblies for use in telephone, radio and microwave
transmission and reception and other communication areas that are used in both
military and commercial applications. The Company's products are used for
transceiving various quantities, data and protective relaying functions in
industrial, utility and other markets.

The Company is engaged in the design and manufacture of (i) transducers,
which are electromagnetic devices which convert electrical energy into
mechanical and other forms of physical energy, or conversely convert mechanical
and other forms of physical energy into electrical energy; (ii) digital signal
processing (DSP) systems and electromagnetic wave filters for differentiation
among discreet audio and radio frequencies; (iii) audio transmitters and
modulators, for the transmission over telephone lines, microwave circuits, or
satellite, of electrical signals obtained from transducers, data generated in
electronic code form or by computers or other similar equipment (not
manufactured by the Company); (iv) audio receivers and demodulators which are
small systems which receive and decode the signals from the audio transmitters
and convert them into digital codes for input into computers, teletypes or other
similar equipment (not manufactured by the Company) or convert such signals into
mechanical or other form of energy, such as opening or closing valves, or
starting or stopping a motor; (v) magnetic "networks" which are devices that
permit the matching or coupling of different types of communication equipment
together or many identical or similar equipment together or onto telephone or
other transmission lines so as not to cause interference; and (vi) analog
transmitters and receivers, which permit the coding/transmission and
receiving/decoding of a constantly variable data, such as the water level in a
tank, pressure in a pipe or temperature, by actually displaying the exact
information at the receiving end in digital form for storing in a computer or
other devices, or by physically displaying the information in a visual fashion
such as a numerical readout or meter.

<PAGE>

Since the 1980's, Conolog has been an active participant in providing
electromagnetic wave filters for major military programs, such as the Patriot
Missile, Hawk Missile and Sea Sparrow Missile. In addition to these projects,
Conolog components are currently used by the military in tanks, the Apache
helicopters and the MK-50 torpedoes.

During 1987, the Company made the strategic decision to redirect the
Company's focus from military to commercial markets. Since that time, the
Company has refocused on manufacturing and marketing its products for the
commercial marketplace rather than depend on the military and defense related
markets. The effort has included the introduction of new products, the redesign
of existing products and increased advertising and marketing efforts, as
permitted by its limited financial resources. The percentage of revenues
attributed to products manufactured for use in commercial applications increased
from approximately 4% of sales in 1981 ($171,000) to approximately 77% of sales
in 1996 ($1,480,000). The decision to embark on this program entailed a major
design effort, including the coordination of outside engineering consultants to
develop a complete line of products aimed at the Company's target markets. The
emphasis was on products for electric utilities, cogeneration of power, gas and
water companies, traffic control for departments of transport (DOT) and airports
utilizing DSP (Digital Signal Processing) technology. DSP designs have long term
stability with minimum or no maintenance, allowing the Company to offer
customers a product line with a 12 year warranty - a first on the market.

Testing of the Company's first commercial product group, the
Teleprotection Series PTR- 1000, was under way in the latter part of 1992 by
Bonneville Power Administration. This detailed test permitted the Company to
"fine tune" the product for power transmission applications. In March 1994, the
PTR-1000 was approved for use by such utility and thereafter by other utilities
and municipalities. To date, the Company has sold and delivered over 450
PTR-1000 sets to 14 utilities and 3 municipalities, most of which are installed
and in service.

Following the PTR-1000, in 1993, the Company introduced its "98 Series"
Tone Products for water, gas, telephone and oil companies, waste-water, traffic
control and airports. In 1994 the Company unveiled the Power Supply Series
(allowing the various utilities to power-up the equipment from any power
source), the "40 Series" for transmission of analog variable data (i.e., water
levels, gas pressures, and temperature) and the Multiplexer Series which permits
the transmission of up to 900 separate data points, again using a telephone
line, microwave link, or satellite. In 1994 the Company also introduced the "68
Series" tone products. This series is the "98 Series" repackaged mechanically
specifically for customers with older systems wanting to upgrade to DSP
technology without the expense of a complete mechanical installation. The "68
Series" offers the entire line offered by the "98 Series". In 1995 the Company
introduced a stand alone "98 Series" transmitter and receiver for field
installations and a wide range fiber optic interface for the Iniven products.
The fiber optic interface is also available as a stand alone coupling device. In

1996 the Company launched its industrial grade 1200 Baud Modem for data
transmission/communication.

Due to the end of the cold war and the downsizing of the American
military, the Company experienced unexpected sharp reductions of military
contracts in fiscal 1993 (the Company's fiscal

<PAGE>

year end is July 31) resulting in a 50% decline in the Company's sales for that
year, down to $1,486,298 from $2, 997,308 in fiscal 1992. The sales of new
products could not replace the decrease in military sales. The Company, however,
continued to pursue sales as aggressively as its available resources would
permit. Sales in fiscal 1994 increased to $2,044,860, a 37% increase over fiscal
1993. Sales in fiscal 1995 were $2,090,933 a 2% increase over fiscal 1994. Sales
in fiscal 1996 were $1,924,466 an 8% decrease from fiscal 1995. Revenues from
the Company's military product sales represented approximately 60%, 30% and 23%
of sales of the Company in fiscal 1994, 1995, and 1996, respectively, reflecting
the Company's emphasis on commercial sales and markets.

The Company's products are used in radio and other transmissions,
telephones and telephone exchanges, air and traffic control, automatic
transmission of data for utilities, teleprinting of transmitted data such as
news and stock market information and for use by electric utilities in
monitoring power transmission lines for faults and/or failures. The Company's
products may be used independently or in combination with other products to form
a system type configuration, whereby the Company's equipment is pre-assembled in
a large cabinet with other equipment in a configuration that would provide the
end user with protection as well as operational status displays.

The Company is presently engaged and focused in two basic market areas:
(1) Military sales via direct contract sales to the military, as subcontractor
to systems producers and to foreign governments; and (2) Commercial sales (under
the tradename " INIVEN" (A Division of Conolog)) via direct sales to end users,
sales to system assemblers and sales to contractors/installers. See "Business".

On August 16, 1995, the Company completed an underwritten offering
("August 1995 Offering") of its securities by selling 235,750 Units ("Units"),
each Unit consisting of two (2) shares of Common Stock and one (1) Redeemable
Class A Warrant ("Class A Warrant" or "Warrant") at a price of $10.00 per Unit.
The Company received net proceeds of $1,853,025. The offering was underwritten
by I.A. Rabinowitz & Co. (the "Public Offering Underwriter").

The Company's executive offices are located at 5 Columbia Road,
Somerville, New Jersey 08876, telephone (908) 722-8081.

<PAGE>

Present Capitalization

Common Stock. . . . . . . . . . . . 1,032,639 shares(1)

Series A Preferred Stock. . . . . . 155,000 shares(2)

Series B Preferred Stock. . . . . . 1,790 shares(3)

Shareholders of Record. . . . . . . 843(4)

The Offering

Securities Offered By the
Selling Securityholder(5). . . . 1,775,000 shares of Common Stock, $1.00 par
value per share. See "Descriptions of
Securities."
Common Stock to Be Outstanding
After Completion of the
Offering(6) . . . . . . . . . . . 2,432,639 shares

NASDAQ SmallCap Market Symbols . . Common Stock --- CNLG;
Class A Warrants --- CNLGW

Risk Factors. . . . . . . . . . . . The securities are subject to a high degree
of risk. See "Risk Factors."
- ----------
(1) Does not include treasury stock. See "Financial Statements". Does not
assume conversion of The Chase Manhattan Note into 1,400,000 shares of
Common Stock (See Note 5 below). Does not include possible issuance of (i)
1,135,750 shares of Common stock issuable upon exercise of 1,135,750 Class
A Warrants, (ii) 41,000 shares of Common Stock issuable upon exercise of a
Unit Purchase Option issued to the Public Offering Underwriter and (iii)
20,500 shares of Common Stock issuable upon exercise of Class A Warrants
contained in such Unit Purchase Option.

(2) Each share of Series A Preferred Stock is convertible into 1 share of
Common Stock upon payment of $1,200 per share. See "Description of
Securities".

(3) The shares of Series B Preferred Stock are convertible into an aggregate
of 358 shares of Common Stock. See "Description of Securities" and
"Certain Transactions."

(4) As of October 9, 1996.

(5) The Selling Securityholder has the option to purchase 375,000 shares of
Common Stock held by The Chase Manhattan Bank and a Promissory Note held
by The Chase Manhattan Bank in the principal amount of $1,025,000 (the
"Chase Manhattan Note"). The Chase Manhattan Note is convertible, at the
option of the holder, into 1,400,000 shares of Common Stock. See "Business
- Credit Facility."

(6) Does not include treasury stock. See "Financial Statements."Assumes the
conversion of the Chase Manhattan Note by the Selling Securityholder. Does
not include possible issuance of (i) 1,135,750 shares of Common Stock
issuable upon exercise of 1,135,750 Class A Warrants, (ii) 41,000 shares
of Common Stock issuable upon exercise of a Unit Purchase Option issued to
the public Offering Underwriter and (iii) 20,500 shares of Common Stock
issuable upon exercise of Class A Warrants contained in such Unit Purchase
option. See "Description of Securities", "Selling Securityholders and Plan
of Distribution."

<PAGE>

Use of Proceeds. . . . . . . . . . The Company will not receive proceeds from
the sale of the shares of Common Stock
offered hereby. However, pursuant to an
agreement between the Company and the
Selling Securityholder, the Selling
Securityholder may loan funds, in certain
circumstances, to the Company. See
"Business - Credit Facility -- New Terms of
Credit Facility and Agreement with the
Selling Securityholder."

<PAGE>

Summary Financial Information

The summary financial information set forth below is derived from and
should be read in conjunction with the more detailed financial statements and
notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales and other income $ 1,924,466 $ 2,090,933 $ 2,044,860 $ 1,486,298 $2,997,308
Income (loss) from continuing operations $ 293,552 (1,014,296) (1,182,988) (322,005) 72,026
Income (loss) from continuing operations -
historic .28 (.12) (.27) (.07) .02
Income (loss) from continuing operations
per share, after giving effect (12.01) (27.22) (7.41) 1.66
to 1-for-100 reverse stock split in August
1995
Pro forma loss from continuing operations

per share* .12 (.70)
Total assets 3,927,834 3,882,235 3,739,294 4,601,015 4,586,003
Long-term debt and capitalized lease
obligations 4,973 34,103 3,829,625 3,732,961 2,654,957
</TABLE>

* After giving effect to 1,400,000 shares of Common Stock issuable in
exchange for the unpaid amount of principal and interest due to the Bank.

<PAGE>

<TABLE>
<CAPTION>
AT JULY 31
----------
ACTUAL ADJUSTMENT AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Working Capital $ 1,914,981 (1) $ 1,069,696 $ 2,984,677
Total Assets 3,927,834 3,927,834
Long-Term Liabilities 4,973 4,973
Stockholders' Equity 2,374,312 (1) 1,069,696 3,444,008
</TABLE>

- ----------
(1) Reflects 1,400,000 shares of Common Stock issued in exchange for the
unpaid amount of principal and interest due to the Bank.

<PAGE>

RISK FACTORS

In making comparisons with other investments or in considering the success
of other investments, one should bear in mind that the success of any investment
depends upon many factors including opportunity, general economic conditions,
experience and competence of management. There is no representation that the
same positive factors are present in this Company which have been present in
like ventures that have been successful.

Any person who is considering the purchase of the Securities offered
herein should carefully consider the adverse factors described below. Any one or
more of these factors could have a negative effect on the Company of such impact
as to cause the value of the Company's securities to be greatly diminished.

1. Working Capital; Stockholders' Equity; Prior Periods' Losses and Profits. At
July 31, 1996, the Company had working capital of $1,914,981 and stockholders'
equity of $2,374,312. The Company's continued existence is dependent upon it
successfully expanding its business and attaining profitable operations. The
Company reported income of $293,552 and losses of $522,044 and $1,182,988 for
the years ended July 31,1996, 1995, 1994, respectively. The losses reported
included inventory write-offs of $50,281, $656,248, and $944,970, for years
ended July 31, 1996, 1995, and 1994, respectively. In addition, reported
interest expense for the same periods were $131,854, $253,686, and $362,317
respectively. See "Business-Credit Facility," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

2. Risks Attendant to Expansion. Like any business enterprise operating in a
specialized and competitive market, the Company is subject to many business
risks which include, but are not limited to, unforeseen marketing and
promotional expenses, unforeseen negative publicity and competition. Many of the
risks inherent in the Company's business may be unforeseeable or beyond the
control of management. There can be no assurance that the Company will
successfully market the Company's products or develop new products in a timely
or effective manner, which would materially adversely affect the Company's
operating results. See "Business".

3. Minimal Sales Staff. The Company employs only 2 marketing executives. In
1995, the Company elected a Vice President of Marketing and Sales who introduced
a comprehensive advertising campaign for the major product lines in water/waste
water and utility publications appearing monthly. In addition, the Company has
signed up to attend the major shows pertaining to water, waster water and power
utilities. Although the response to these efforts have shown promise, the
success of the Company's future marketing efforts will depend on the market
environment and the needs of the economy. See "Business of the Company --
Marketing and Sales" and "Employees".

4. Reliance on Component Manufacturers. The Company is dependent on outside
suppliers for all of the subcomponent parts and raw materials necessary to
manufacture the Company's products. A shortage, delay in delivery, or lack of
availability of a given part could lead to manufacturing delays, which could
reduce sales until the problem is remedied. All electrical components of the
Company's products are standard stock items for which a replacement vendor can
be readily obtained. The Company is not dependent upon any single

9
<PAGE>

supplier. The Company purchases some custom parts, primarily printed circuit
boards. The failure of a vendor of one of these customized components could
cause a lengthy delay in production, resulting in a loss of revenues. See
"Business-Raw Materials; Inventory" and "Manufacturing".

5. Dependence on Present Management. The success of the Company is dependent
upon the services of its current management, particularly Robert S. Benou, its
President and its key engineers. The Company carries no insurance on the lives

of any of its officers. None of its officers have written employment contracts.
Thus, the Company cannot force any employee to continue to remain an employee,
and there can be no assurance that the Company will not be competing with any of
such persons if they leave the employ of the Company. If it were to lose the
services of Mr. Benou or any of its other key employees, there is no assurance
that the Company would be able to locate and retain a qualified replacement. The
prolonged lack of availability of any current member of senior management,
whether as a result of death, disability or otherwise, could have an adverse
effect upon the business of the Company. See "Management".

6. Competition: Rapid Technological Change. The market for the Company's
products is very competitive. There are several companies engaged in the
manufacture of products of the type produced by the Company, most of which are
substantially larger and have substantially greater name recognition and greater
financial resources and personnel. The principal elements of competition in the
Company's markets include product quality and reliability, price, service and
delivery. Competition is expected to continue and intensify. The market is also
characterized by rapid technological changes and advances. The Company is an
insignificant factor in the industry. There can be no assurance that the Company
will be able to develop or acquire new products to keep the Company competitive
or stay competitive in general. Lack of market acceptance for the Company's
existing or new products, the Company's failure to introduce new products in a
timely or cost effective manner or its failure to increase functionability of
existing products or remain price competitive, would materially adversely affect
the Company's operating results. There can be no assurance that the Company will
be successful in its product development efforts. See "Business-Research and
Development; New Products" and "Competition".

7. Dependence on Large Customers. Sales to the Company's major customer in
fiscal 1996 (B.C. Hydro-Canada ) totaled $401,000 (20% of all sales). Sales to
the Company's major customer in fiscal 1995 (United States Government) totaled
$424,849 (20% of net sales). During fiscal 1994, sales to the Company's only
major customer (Westinghous Electric Corp. - Naval Systems Division) totaled
$597,000 (29% of net sales). None of such customers has or had any material
relationship other than business with the Company. See "Business-Large
Customers".

The dependence on major customers subjects the Company to significant
financial risks in the operation of its business should a major customer
terminate, for any reason, its business relationship with the Company. In such
event the financial condition of the Company may be adversely affected and the
Company may be required to obtain additional financing, of which there can be no
assurance. The Company has taken into account the decreasing military budget of
the United States. See "Business-History." Currently less than 50% of the
Company's revenues are derived from the military and are expected to diminish as
a percentage of sales.

10
<PAGE>

8. Defense Industry Downsizing - Historical Dependence on Government Contracts.
Recent world events have resulted in a decreased demand for defense related
products causing a general downsizing of the American defense industry. These
factors, along with federal budget constraints, have caused the Company to
realize order cancellations in the amount of $650,000 since 1990 and for another
$600,000 placed on a production hold pending specific releases. The Company's
ability to continue to attract and retain orders from defense contractors, which
as a group accounted for $442,627 in fiscal 1996 or 23% of the Company's total
revenue of $1,924,466, has been affected. The Government shutdown during the
last half of 1995 and early 1996 seriously aggrevated an already deteriorating
situation impairing overall sales level growth. While the Company has changed
its strategy for growth by a conversion to primarily commercial business, there
can be no assurance that it will be completely successful in this objective.

9. Price Stability. The Company's sales to defense-related contractors and
manufacturers have historically occurred in a relatively stable price
environment. Pressure in defense spending may adversely affect prices and profit
margins in that market. While the Company believes that its planned expansion in
the commercial market will help it to better manage such a change in the defense
market, there can be no assurance that it will be completely successful in this
objective.

10. No Assurance of Public Trading Market for Common Stock; "Penny Stock"
Regulations. Prior to this offering, the Company's Common Stock has been thinly
traded in the Nasdaq Small Cap Market and there is no assurance that an active
trading market will develop, or that an active trading market, if developed,
will be sustained. If for any reason, however, an active public trading market
does not develop, purchasers of the Securities may have difficulty in selling
their Securities should they desire to do so. In any event, due to the price of
the Company's securities, many brokerage firms will not effect transactions in
the Securities and it is unlikely that any bank or financial institution will
accept such Securities as collateral, which could have an adverse effect in
developing or sustaining any market for the Company's Securities. Under the
rules of the National Association of Securities Dealers, Inc. ("NASD"), in order
to qualify for initial quotation of securities on Nasdaq, a company, among other
things, must have at least $4,000,000 in total assets, $2,000,000 in total
capital and surplus, $1,000,000 in market value of public float, a minimum bid
price of $3.00 per share and at least two (2) market makers. For continued
listing, a company, among other things, must have $2,000,000 in total assets,
$1,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy the requirements for quotation on Nasdaq, trading if any, in the Units,
Common Stock and Warrants offered hereby would be conducted in the
over-the-counter market in what are commonly referred to as the "pink sheets" or
on the NASD's Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Securities offered hereby. The above-described rules may materially
adversely affect the liquidity of the market for the Company's Securities.
Between January 1988 and the August 1995 Offering, the Company's Common Stock
traded on the OTC Bulletin Board. Prior thereto, the Common Stock was listed on
Nasdaq until it was delisted for failure to meet the Nasdaq requirements.

The Securities and Exchange Commission (the "Commission") has adopted

regulations which generally define "penny stock" to be an equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. If the Securities
offered hereby are removed from Nasdaq, the Company's securities may become
subject to rules that impose additional

11
<PAGE>

sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and institutional accredited investors.
For transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell the Company's securities and may affect the ability of purchasers in the
offering to sell the Company's securities in the secondary market.

11. Restricted Shares of Common Stock Eligible for Future Sale. Immediately
prior to the sale of the Shares hereunder, the Company had an aggregate
1,032,639 shares of its Common Stock issued and outstanding, 538,687 of which
are "restricted securities," which may be sold only in compliance with Rule 144
under the Securities Act of 1933, as amended (375,000 of which are being
registered hereunder by the Selling Securityholder). Rule 144 provides, in
essence, that a person holding restricted securities for a period of two years
after payment therefor may sell, in brokers' transactions or to market makers,
an amount not exceeding 1% of the outstanding class of securities being sold, or
the average weekly reported volume of trading of the class of securities being
sold over a four-week period, whichever is greater, during any three-month
period. (Persons who are not affiliates of the Company and who have held their
restricted securities for at least three years are not subject to the volume or
transaction limitations.) Any such sales could have a material adverse effect on
the market price for the Common Stock, should a trading market develop.

12. No Common Stock Dividends. The Company has not paid any dividends on its
Common Stock and does not anticipate paying dividends on its Common Stock in the
foreseeable future. The future payment of dividends is directly dependent upon
future earnings of the Company, its financial requirements and other factors to
be determined by the Company's Board of Directors. For the foreseeable future,
it is anticipated that any earnings which may be generated from the Company's
operations will be used to finance the growth of the Company even if the
Company's operations are profitable. See "Dividends". In addition, under the
terms of the Company's existing bank line of credit and outstanding
indebtedness, the Company is prohibited from paying any cash dividends. See

"Business - Credit Facility".

13. Control by Management. Officers and directors and persons who may be deemed
affiliates, as a group, beneficially own and have the right to vote 82% of the
issued and outstanding Common Stock of the Company (assuming conversion of the
Chase Manhattan Note - See "Principal Shareholders"), assuming no exercise of
any options or warrants. Inasmuch as the Company's Certificate of Incorporation
does not provide for cumulative voting, such holders will be in a position to
elect all of the directors and thereby control the Company. The purchasers of
securities in this offering will have only a limited ability to elect any
directors of the Company or to significantly affect corporate decision making on
material events such as mergers or acquisitions. See "Principal Stockholders"
and "Description of Securities."

12
<PAGE>

14. Governmental Regulation. The Company's manufacturing facilities, in common
with those of the industry generally, are subject to numerous existing and
proposed Federal and state regulations designed to protect the environment,
establish occupational safety and health standards and many other matters. The
Company believes that its operations are in compliance with existing regulations
and does not believe that said compliance has had or will have any material
effect upon its capital expenditures, earnings or competitive position. See
"Business-Governmental Regulation."

15. Dependence on Qualified Personnel. Because of the technological nature of
the Company's business, the Company is dependent upon its ability to attract and
retain technologically qualified personnel. There is significant competition for
technologically qualified personnel and the Company may not be successful in
recruiting such qualified personnel. See "Management."

16. Facilities Subject to Lien. The Company owns its facilities located at 5
Columbia Road, Somerville, NJ, which is subject to a lien to secure a loan made
by Chase Manhattan Bank. Should the Company default on such loan, it may lose
its facilities, which may have a material adverse impact on the Company. The
Bank has deferred all payments of principal and interest under the Chase
Manhattan Note until April 16, 1997. If the Chase Manhattan Note is converted
into 1,400,000 shares of Common Stock, the lien on the Company's facility will
be released. See "Business - Credit Facility."

17. Additional Authorized Shares Available for Issuance May Adversely Affect the
Market. The Company is authorized to issue 20,000,000 shares of its Common
Stock, $1.00 par value. As of the date hereof there are a total of 2,432,963
shares of Common Stock (assuming conversion of the Chase Manhattan Note) issued
and outstanding (not including treasury stock, See "Financial Statements").
However, the total number of shares of Common Stock issued and outstanding does
not include the exercise of up to 1,137,750 Class A Warrants to purchase up to
1,137,750 shares of the Company's Common Stock, the Public Offering
Underwriter's option to purchase up to 41,000 shares of Common Stock and 20,500
Class A Warrants to purchase 20,500 shares of Common Stock. After reserving a
total of 1,199,250 shares of Common Stock for issuance upon the exercise of all
the Warrants, the Company will have at least 16,368,111 shares of authorized but

unissued capital stock available for issuance without further shareholder
approval (of which 155,358 has been reserved for conversion of all of the
Company's Series A and Series B Preferred Stock outstanding).

The registration statement of which this prospectus forms a part covers
the offering of 1,775,000 shares of Common Stock which are subject to an option
to purchase by CNL Holdings, Inc. from Chase Manhattan Bank. Sales of such
Common Stock in the future, however, may have an adverse effect on the market
price of the Company's Common Stock. See "Selling Securityholder and Plan of
Distribution."

13
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
July 31, 1996, and as adjusted to give effect to the exchange of the securities
for the unpaid amount of principal and interest due to the Bank. This table
should be read in conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this Registration Statement.

<TABLE>
<CAPTION>
AT JULY 31, 1996
------------- ----------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
------------- ----------- -----------
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:

Preferred Stock, par value $.50; Series
A; 4% cumulative; 162,000 shares
authorized, 155,000 shares issued and
outstanding $ 77,500 $ --- $ 77,500

Preferred Stock, par value $.50; Series B;
$.90 cumulative; 50,000 shares authorized;
1,790 shares issued and outstanding 597 --- 597
----------- ----------

Preferred Stock, par value $5.00,
2,000,000 shares authorized after
offering (-0- shares before offering) --- --- ---

Common Stock, par value $1.00 authorized
6,000,000 shares (20,000,000 shares
after offering); issued 1,032,639 shares
including 8,776 shares held in Treasury
before offering; after offering
2,432,639(1) 1,035,186 (1) 1,400,000 2,435,186
----------- ----------

Additional paid in capital 4,401,636 (1) (330,304) 4,071,332
----------- ----------

Retained earnings (deficit) (3,008,873) ---- (3,008,873)
----------- ----------

Treasury stock (131,734) ---- (131,734)
----------- ----------

TOTAL STOCKHOLDERS'
EQUITY 2,374,312 ---- 3,444,008
----------- ----------

TOTAL CAPITALIZATION $ 2,374,312 ---- $3,444,008
=========== ==========
</TABLE>

- ----------
(1) Reflects 1,400,000 shares of Common Stock issued in exchange for the
unpaid amount of principal and interest due to the Bank.

<PAGE>

DIVIDENDS

Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors of the Company. To date, the Company has
neither declared nor paid any dividends on its Common Stock nor does the Company
anticipate that such dividends will be paid in the foreseeable future. Rather,
the Company intends to apply any earnings to the expansion and development of
its business. Any payment of cash dividends on the Common Stock in the future
will be dependent upon the Company's earnings, financial condition, capital
requirements and other factors which the Board of Directors deems relevant.
Until such time as the Credit Facility is paid in full, the Company is
restricted from issuing any dividends on its capital stock. See "Risk
Factors-Dividends" and "Business-Credit Facility" and "Description of
Securities."

<PAGE>

Selected Financial Information

The summary financial information set forth below is derived from and
should be read in conjunction with the more detailed financial statements and

notes appearing elsewhere in this Prospectus.

YEAR ENDED JULY 31
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------

<S> <C> <C> <C> <C> <C>
Net sales and other income $ 1,924,466 $ 2,090,933 $ 2,044,860 $ 1,486,298 $2,997,308

Income (loss) from continuing operations $ 293,552 (1,014,296) (1,182,988) (322,005) 72,026

Income (loss) from continuing operations -
historic .28 (.12) (.27) (.07) .02

Income (loss) from continuing operations
per share, after giving effect (12.01) (27.22) (7.41) 1.66
to 1-for-100 reverse stock split in August
1995

Pro forma loss from continuing operations
per share* .12 (.70)

Total assets 3,927,834 3,882,235 3,739,294 4,601,015 4,586,003

Long-term debt and capitalized lease
obligations 4,973 34,103 3,829,625 3,732,961 2,654,957

</TABLE>

* After giving effect to 1,400,000 shares of Common Stock issuable in
exchange for the unpaid amount of principal and interest due to the Bank.

16
<PAGE>

<TABLE>
AT JULY 31
----------
ACTUAL ADJUSTMENT AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>

Working Capital $ 1,914,981 (1) $ 1,069,696 $ 2,984,677

Total Assets 3,927,834 3,927,834

Long-Term Liabilities 4,973 4,973

Stockholders' Equity 2,374,312 (1) 1,069,696 3,444,008
</TABLE>

- ----------
(1) Reflects 1,400,000 shares of Common Stock issued in exchange for the
unpaid amount of principal and interest due to the Bank.

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations

In order to summarize the Company's operating results for the past three
years, the following tables indicate the percentage relationships of income and
expense items in the statements of income and the percentage changes in those
items for such years.

<TABLE>

<CAPTION>
Income & Expense Items as a Percentage of Income & Expense Percentage
Revenue from Operations Items Increase/Decrease
- ----------------------------------------- ---------------------- -------------------------------------------

Years Ended July 31,
- ----------------------------------------- -------------------------------------------
1996 1995 1994 1995 to 1996 1994 to 1995 1993-to-1994

<C> <C> <C> <S> <C> <C> <C>
100.0% 100.0% 100.0% Sales & other income (8.00)% 2.2% 37.5%
67.20* 92.20* 98.40* Cost of products sold (32.90) (4.20) 203.6
49.20 44.20 41.70 Selling, general & 2.40 8.40 6.0
administrative
6.80 12.10 17.70 Interest (48.00) (30.0) 7.8

123.20 (148.50) 157.80 Total costs & (23.60) (3.80) 78.8
expenses
(23.20) (48.50) (57.80) Income (loss) before (56.00) (14.30) (269.8)
taxes
--- (23.50) --- Income taxes (100.00) (96.4)
(credits)
(23.20)% (25.0)% (57.8)% Income (loss) before (14.40)% (14.3)% (267.4)%

extraordinary item
</TABLE>

- ----------

* Includes write-offs for obsolete or excess inventories which were $50,281,
$656,248, and $944,970 for 1996, 1995 and 1994, respectively.

<PAGE>

1996 Compared to 1995

On August 16, 1995, the Company offered 235,750 Units (the "Units") at a
price of $10.00 per Unit. Each Unit consisted of two (2) shares of Common Stock,
par value $1.00 per share ("Common Stock"), and one (1) Redeemable Class A
Warrant for Common Stock ("Class A Warrant"). The Common Stock and Class A
Warrants were immediately detachable and separately tradeable. Each Class A
Warrant entitled the holder to purchase one share of the Company's Common Stock,
at an exercise price of $6.00, subject to adjustment, from August 17, 1996
through August 16, 1998. The Class A Warrants are subject to redemption by the
Company at anytime after August 17, 1996 on not less than 30 days notice at $.05
per warrant, provided the average closing price of the Common Stock for 20
consecutive trading days ending within 15 days prior to the notice exceeds $7.20
per share.

The costs of the offering were deducted from the proceeds from the sale of
stock.

On August 16, 1995, the Company effected a 1- for - 100 reverse stock
split of its Common Stock on all shares of Common Stock outstanding.

On August 16, 1995, holders of 19,360 shares of the Company's Series B
Preferred Stock (including Robert Benou and Arpad J. Havasy, officers and
directors of the Company) converted their shares of Series B Preferred Stock
into 387,200 (3,872 post-split) shares of Common Stock.

On August 16, 1995, $381,533 of the $420,179 of accrued dividends on the
Series B Preferred Stock at December 31, 1994 were converted into 76,307 shares
of Common Stock (represents a $5.00 per share assigned value of Common Stock)
and the remaining dividends due to such holders (including Messrs. Benou and
Havasy) were waived.

On August 16, 1995, accrued salaries through April 28, 1995 of $309,109
owed by the Company to Mr. Benou were converted into 61,822 shares of Common
Stock (represents a $5.00 per share assigned value of Common Stock).

On August 16, 1995, in connection with the August 1995 Offering, the Bank
exchanged their existing loan agreement for the following:

(a) $250,000 cash
(b) $1,025,000 five-year term loan
(c) 375,000 common shares of the Company

The debt forgiveness of $1,232,728 on restructuring of the obligation less
the tax benefit thereon is accounted for as an extraordinary gain to the
Company.

19
<PAGE>

Revenues for the year ended July 31, 1996 decreased to $1,924,416 from
$2,090,933 for the year ended July 31, 1995 representing a decrease of 8%.
Revenues declined as a result of a decline in sales in the military sector. The
Company completed a large sale of switches to the military in fiscal 1996 and
did not have a comparable sale for fiscal 1995.

Gross margins for the year totaled $632,1841 and $163,194, respectively,
representing 32.9% and 7.8% of revenues. Gross margins were higher in 1996 due
to the obsolete inventory write-off in 1995. Without the inventory write-off the
1996 and 1995 gross margin would have been 35.5% and 39.3% respectively. The
gross margin for 1996 was lower than 1995 without the inventory write-off due to
the fact that the higher than normal discounts were offered and taken on two
major sales.

Selling, general and administrative expenses increased from $924,524 in
1995 to $946,954 in 1996, representing an increase of 2.4%. These expenses
increased as a result of an expansion of the employment base and an increase in
advertising and promotion costs.

Interest expense totaled $134,854 for the year ended July 31, 1996 as
compared to $253,686 in interest expense for the year ended July 31, 1995. The
Company reached a debt restructuring agreement with the Bank during 1995 that
resulted in having no interest expense for the quarter ended April 30, 1995.

As a result of the foregoing, the Company reported a net profit of
$293,552 or $.28 per share. The 1996 net profit was inclusive of a debt
compromise of $740,376 net of a tax benefit of $492,352. This compares to a net
loss of $522,044, or $.12 per share for the same period last year (after
retroactive effect to a 1 for 100 reverse split on August 16, 1995 and after
extraordinary item in 1996).

As of July 31, 1996 Registrant's backlog of orders stands at approximately
$3.4 million, a mix of military and commercial telecommunication products. The
Company anticipates its commercial shipments to grow as a percentage of total
sales for the foreseeable future.

1995 Compared to 1994

Total revenue increased $46,000, or 2.2% from $2,045,000 in 1994 to
$2,091,000 in 1995. The increase was attributable to an expansion in the
commercial sector of the Company's business, which contributed $1,422,000 or 68%
of total revenues in 1995, compared to $1,300,000 or 64% of total revenues in
1994.

Costs of sales totaled $1,271,000 for the year ended July 31, 1995 as
compared to $1,068,000 for the comparable period ended July 31, 1994,
representing 60.8% and 52.2% of net revenues, respectively. Cost of sales
increased as a result of product mix during the comparable years.

20
<PAGE>

A charge of $656,000 for inventory write-off was recorded during the
year. This amount was exclusively due to certain inventories purchased for
military programs in prior periods that were phased out. There was a comparable
charge of $945,000 in fiscal 1994.

The Company determined during the first quarter of 1995 that there was not
sufficient information from the Government's Defense-Electronic Supply Center
("DESC") facility to permit the Company to make a quantitative determination for
future sales. Inventory which totaled $656,000 was written off after management
made an analysis of parts maintained for military and government orders compared
to available inventories. This amount consisted of $318,000 for raw materials,
$249,000 for work in progress and $89,000 for finished goods. There were
comparable charges of $945,000 in the twelve month period ended April 30, 1994.
This analysis consisted of a study of the forecasted requisitions of upcoming
orders of the DESC, Conolog's principle defense customer. On examination of
prospective sales, it was determined that the government has no requirements for
Conolog's military products for at least the next twelve to eighteen months.

As a result of the foregoing, gross profit margins totaled $163,914 or
7.8% of sales for the fiscal year ended July 31, 1995 as compared to $32,330 or
1.6% of sales for the same twelve month period in 1994. Exclusive of inventory
adjustments, gross profit margins would have been 39% for the year ended July
31, 1995 and 48% for the year ended July 31, 1994.

Selling, General and Administrative Expense totaled $925,000 or 44.2% of
revenues, as compared to $853,000 or 41.7% of revenues for the comparable period
last year.

As a result of the foregoing, an operating loss of $761,000 was realized
for the year ended July 31, 1995 as compared to an operating loss of $821,000
for the same period last year.

Interest expense for the twelve months totaled $254,000 compared to
$362,000 for the fiscal year ended July 31, 1994. The bank had agreed to fix the
total interest owed as of January 31, 1995 and to keep the amount unchanged
through August 16, 1995. Accordingly, no interest expense was accrued from
February 1, 1995 through July 31, 1995.

As a result of the foregoing, the Company incurred a net loss of $522,000
for the twelve months ended July 31, 1995, compared to a net loss of $1,183,000
for the same period last year. The loss in 1995 was reduced by the income tax
benefit derived from previously incurred operating losses not deducted. The
losses, as a result of the Registration, will be deductible against forgiveness
of indebtedness income.

As of July 31, 1995 the Company's backlog totaled $1.3 million, consisting
of a mix of military and commercial telecommunication products, compared to $1.5
million at July 31, 1994. The Company anticipates its commercial shipments to
continue to grow as a percentage of total sales in the foreseeable future.

1994 Compared to 1993

21
<PAGE>

Sales and other income increased $558,500, or 37.5% from 1993. The
increase was due to the concentration of marketing to non-government customers,
which began several years ago but is now beginning to materialize. Government
sales in fiscal 1994, as well as in fiscal 1993 were approximately $700,000 per
year. In fiscal 1992 and earlier, government sales exceeded $2,000,000 per year.

During the quarters ended October 31, 1993, January 31, 1994 and April 30,
1994 not all government requisitions for procurements had been posted at the
government's Defense Electronics Supply Center ("DESC") facility in Dayton,
Ohio. Until all requisitions for future procurements are listed, the Company
could not determine which items would be phased out or not procured at all.

Based upon the open requisitions by DESC, during the last quarter of the
fiscal year, it was demonstrated that a much reduced future for potential
business existed. Based on the reduced potential quantities, the Company wrote
off a commensurate percentage of its related military inventory, which amounted
to $944,970. In addition, the Company wrote off any parts that had not been
required for products for 4 years and for which no orders had been received in
the past 2 years and no orders anticipated in the coming year. On this basis,
the Company determined that the utility of these parts was zero.

It has been the experience of the Company that when no orders are received
for a product for a period of 2 years, none were received in the third or
subsequent years. The same is true for any parts that had not been called for
production for 4 years. General parts are interchangeable and unless they are
earmarked for a specific job, a 4 year life is considered normal.

Costs of products sold is a distorted figure, 98.4%, since approximately
$945,000 of old inventory was written off. Had this write-off not occurred, the
cost of sales would have been 52.2%. Although this percentage is greater than
normal, the lack of available cash has hampered management's ability to buy
product at more favorable prices. Inventory was written off in the last quarter
of the fiscal year after an analysis was made of parts in the stockroom that
were at least four years old and for which no orders had been received in the
past two years.

Selling, general and administrative costs increased $48,000 from 1993, or
6%, due primarily to increased salaries.

Interest and expense increased by $26,000, or 7.6%, due to an increase in
rates. Approximately $483,000 of interest to the Bank has been accrued but
unpaid. Under the new restructured loan agreement, that interest will begin to
be paid off beginning July 1995. See "Business - Credit Facility."

Financial Condition, Liquidity and Capital Resources

22
<PAGE>

1996 Compared to 1995

Working capital at July 31, 1996 was $1,914,981 compared to a deficit of
$2,229,171 at year ended July 31, 1995. The improvement in the working capital
is the result of the August 1995 Offering, as described in more detail under
Results of Operations.

The Company is technically in default of its bank loan to the Bank due to
non-payment of principal and interest since January 1996. However, the Bank has
agreed to defer any payments at this time since they have signed an allonge
agreement with the Company in September 1996 (see below). The total debt is on
the balance sheet as current as of July 31, 1996. Interest has been accrued
through July 31, 1996.

Accounts receivable have increased from $171,541 at year-end July 31, 1995
to $304,020 at July 31, 1996. This increase has been caused by slower payment
procedures by certain Government agencies, a smaller discount policy currently
offered to customers of normal sales and sales having been made to several
customers for export with acceptance at destination, which historically extends
the collection period.

Management feels that it has leased or acquired sufficient equipment to
meet its capital expenditure needs for the next year. Obligations under capital
leases which are presently in effect are approximately $34,000 for the year and
somewhat less thereafter. Historically, the Company has always leased equipment.
Its annual lease obligations have ranged from $59,000 in 1993 to its present
figure of $34,000. The Company's liquidity and working capital have been
effected by these obligations and will continue to be so since the operation is
dependent upon the use of this equipment.

For the past year, the Company's marketing emphasis has been directed to
the utility industry since its Iniven line produces a variety of products used
by them. Most of the products offered must be tested for quality, endurance,
etc. for a period of time by the potential customer. Management is of the
opinion that much of the testing will be completed in the coming year and sales
will be forthcoming from the results of these tests. Accordingly, it is
anticipated that sales and profits will be higher in the next twelve months as
compared to the past twelve months.

1995 Compared to 1994

At July 31, 1995, the Company had a working capital deficit of $2,229,000

and a shareholder deficit of $1,944,000. The Company increased its liquidity on
August 24, 1995, through the sale of common stock in a public offering. The net
proceeds received from the August 1995 Offering were approximately $1,527,000,
which caused working capital to increase by that amount. In addition, the
shareholders' deficit of $1,944,000 has changed to a surplus of approximately
$3,100,000 as a result of the proceeds of the stock offering and the
restructuring of the bank loan permitted by the additional equity.

23
<PAGE>

During the fiscal year, the Company decreased its inventory from
$2,990,000 to $2,600,000. The decrease in inventory was caused primarily by a
$656,000 writedown of certain of the Company's slow-moving military products,
partially offset by increased requirements in stocking levels for commercial
parts. The Company increased its sales and marketing efforts late in the year as
part of its strategy to improve its revenues. The increase in operating expenses
resulting from these efforts adversely affected the liquidity of the Company.
The Company plans to continue to accelerate its sales, marketing and research
and development efforts at increased levels for the foreseeable future.

The Company has no material commitments for capital expenditures as of the
date hereof. The Company anticipates, however, acquiring additional equipment
and fixtures (for example, test equipment and manufacturing equipment) and may
consider a subcontractor for increased manufacturing volume in the future, as
increased requirements may dictate. The Company has begun to evaluate a number
of make-or-buy operations in order to assure adequate resources for future
production.

Inflation

Management believes that the results of operations have not been affected
by inflation and management does not expect inflation to have a significant
effect on its operations in the future.

1994 Compared to 1993

The Company was not able to meet its commitment made under the
restructured loan agreement dated November 1993. However, the Bank has agreed to
further restructure the Credit Facility and extend the payments of principal and
interest. Interest on the loans will accrue but will not be payable until July
31, 1995. Beginning on that date, interest payments are to be made in arrears on
the last day of each month, with all unpaid interest previously accrued becoming
due and payable on November 30, 1995. All principal on the loans will become due
and payable on November 30, 1995. The additional extension was granted after the
Company prepared projections for the forthcoming year. These projections
indicate a certain amount of profitability but not enough cash flow to begin
payment of principal within the fiscal year 1995.

Working capital at July 31, 1994 was $2,086,000 compared to $3,275,000 in
1993. The drop in working capital was primarily due to a write-off of inventory
for military sales, which management feels will not materialize. The working
capital ratio at 1994 was 2.75% compared to 4.9% at 1993.

Management is encouraged by the increase in sales to its non-military
customers. Should projections be realized, the Company should begin to turn
around and produce a profit this coming fiscal year. Cash flow should be
sufficient to meet the Company's current obligations.

24
<PAGE>

New Terms of Credit Facility and Agreement with the Selling Securityholder

The principal amount owing to the Bank under the Company's Credit Facility
at July 31, 1996 was $1,012,500 and the unpaid accrued interest was $57,196. The
Bank and the Company have entered into the Conolog Corporation Allonge, dated as
of September 11, 1996, pursuant to which the Amended and Restated Term Note
dated as of August 2, 1995 between the Company and the Bank (the "Note") was
amended to permit the conversion by the Bank of the unpaid principal and
interest due under the Note into 1,400,000 shares of the Company's Common Stock
on or before April 16, 1997. The conversion right may be exercised by the Bank
or its assignee. The Bank has deferred all payments of principal and interest
under the Note until April 16, 1997.

The Bank and CNL Holdings, Inc. ("CNL or the "Selling Securityholder")
have entered into an Option and Purchase, Sale and Assignment Agreement dated as
of September 12, 1996 (the "Option Agreement"). Under the Option Agreement the
Bank has granted an option to CNL to purchase all of the Bank's interest in (i)
the Amended and Restated Term Loan Agreement dated as of August 2, 1995 between
the Company and the Bank, (ii) the Note and (iii) the 375,000 shares of the
Company's Common Stock owned by the Bank. CNL paid $150,000 to the Bank for the
option, which has an exercise price of $1,500,000 (a balance of $1,350,000) and
an expiration date of April 15, 1997.

The Company and CNL have entered into an agreement dated as of September
12, 1996 (the "Agreement"), whereby CNL has agreed to loan up to $2,500,000 to
the Company under certain circumstances (as described below) and the Company has
agreed to file a registration statement (the "Registration Statement") with the
Securities and Exchange Commission to register the 375,000 shares of Common
Stock owned by the Bank and the 1, 400,000 shares of Common Stock into which the
Note is convertible (collectively, the "Acquired Shares").

The proceeds of the sale of the Acquired Shares will be applied as
follows: the first $1,500,000 will be paid to CNL for the payments made to the
Bank pursuant to the Option Agreement; 50% of the balance, up to $2,500,000,
will be loaned to the Company (the "Loans") within five days of CNL's receipt of
the proceeds.

Each loan will be evidenced by a Note bearing interest at the rate of 4%
per annum and will be due 12 months from the date of such Loan. At maturity, the
Company will have the option to pay each Loan, together with all accrued
interest thereon, by issuing shares of a new Series C Preferred Stock (the
"Series C Preferred") having a value of $5.00 per share for purposes of such

repayment.

The series C Preferred will be non-voting and carry a cumulative dividend
of 8% per annum which may be payable by the issuance of shares of Common Stock
valued at $5.00 per share up to a maximum of 40,000 shares per annum. The Series
C Preferred will be convertible into common stock at the rate of one share of
common stock for each share of Series C Preferred and have a liquidating
preference of $5.00 per share.

25
<PAGE>

The Agreement also provides that for the two year period commencing on the
issuance of any shares of Series C Preferred (the "Registration Period") CNL may
elect to include its Series C Preferred in any post-effective amendment to the
Registration Statement or any new registration statement under the Securities
Act of 1933, as amended. In addition, the Agreement also provides that during
the Registration Period, CNL may give notice to the Company to the effect that
it desires to register its shares under the Act for public distribution in which
case the Company will file a post-effective amendment to a then current
registration statement or a new registration statement.

Management believes that the foregoing transactions benefit the Company
and its stockholders. In the event CNL exercises its option under the Option
Agreement, exercises the conversion right under the Agreement and the offering
of the Acquired Shares is successful, the Company has the opportunity to, in
effect, exchange its debt for Preferred Stock and eliminate the Company's
default under the Credit Facility.

26
<PAGE>

MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS

The Company's Common Stock and Warrants are thinly traded on the Nasdaq
SmallCap Market, under the symbols CNLG and CNLGW. Prior to the August 1995
Offering, the Common Stock was traded on the OTC Bulletin Board.

The following table sets forth, for the periods indicated, the high and
low bid and asked quotations of the Common Stock, based upon information
supplied by the National Quotation Bureau for the years 1993, 1994, and the
first two quarters of 1995. Such quotations represent inter-dealer prices,
without retail markups, markdowns or commissions and may not necessarily
represent actual transactions. The Company effected a 1-for-100 reverse stock
split on August 16, 1995. As of October 9, 1996, the Company's Common Stock was
held by approximately 843 shareholders of record.

Bid Asked
----------------- -----------------

High Low High Low
----------------- -----------------
1993

First Quarter .08 .05 .25 .14

Second Quarter .08 .05 .50 .14

Third Quarter .08 .04 .50 .14

Fourth Quarter .08 .04 .15 .14

1994

First Quarter .05 .04 .15 .14

Second Quarter .05 .03 .15 .125

Third Quarter .05 .001 .15 .06

Fourth Quarter .015 .001 .10 .05

1995

First Quarter .02 .01 .10 .05

Second Quarter .04 .01 .15 .05

27
<PAGE>

The following table sets forth, for the periods indicated, the high and
low prices of the Company's Units (which no longer trade), Common Stock and
Warrants traded on the Nasdaq SmallCap Market for the third and fourth of 1995
and the first three quarters of 1996.:

<TABLE>
<CAPTION>
Units Common Stock Warrant
----- ------------ -------
1995 High Low High Low High Low
- ---- ---- --- ---- --- ---- ---

<S> <C> <C> <C> <C> <C> <C>
Third Quarter
18.5 14 8.50 5.75 4 2

Fourth Quarter
19.25 14.75 9.25 6.25 3.25 1.25

1996
- ----
First Quarter

Second Quarter 15 11 8.125 3.875 2 .9375

Third Quarter
11.25 11.25 6.5625 4.25 1.5 1.0156

__ ___ 6.25 2.25 1.5 .5625

</TABLE>

28
<PAGE>

BUSINESS

General

Conolog Corporation, a Delaware corporation (the "Company" or "Conolog")
is engaged in the design, manufacture (directly or through subcontractors) and
distribution of small electronic and electromagnetic components and
subassemblies for use in telephone, radio and microwave transmission and
reception and other communication areas that are used in both military and
commercial applications. The Company's products are used for transceiving
various quantities, data and protective relaying functions in industrial,
utility and other markets.

History

The Company was organized in 1968 and was engaged primarily in the design
and manufacture of electronic components and systems for military applications.

The Company, in July 1971, merged with DSI Systems, Inc., then engaged in
the development and manufacture of terminal viewers for digital retrieval of
microfilm. Later that year, the name was changed from DSI Systems, Inc. to
Conolog Corporation.

By 1980 it became apparent that the military segment of the business was
growing while the terminal viewer segment was a drain on cash and other
resources. By the year end the terminal viewer business was discontinued and the
inventory relating thereto was written off, allowing the Company to concentrate
on its military business.

In 1981 the Company acquired one of its customers, INIVEN Corporation
("INIVEN"). At that time, the Company was manufacturing, on behalf of INIVEN, a
line of transmitters and receivers used for controlling and transceiving the
measurement of the flow of gases and liquids, by gas and water utilities, for
controlling the flow of waste water and sewage and measuring and controlling
traffic.

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increased from approximately 4% of sales in 1981 ($171,000) to approximately 77%
of sales in 1996 ($1,480,000). The decision to embark on this program entailed a
major design effort, including the coordination of outside engineering
consultants to develop a complete line of products aimed at the Company's target
markets. The emphasis was on products for electric utilities, cogeneration of
power, gas and water companies, traffic control for departments of transport
(DOT) and airports utilizing DSP (Digital Signal Processing) technology. DSP
designs have long term stability with minimum or no maintenance, allowing the
Company to offer customers a product line with a 12 year warranty - a first on
the market.

Testing of the Company's first commercial product group, the
Teleprotection Series PTR-1000, was under way in the latter part of 1992 by
Bonneville Power Administration. This detailed test permitted the Company to
"fine tune" the product for power transmission applications. In March 1994, the
PTR-1000 was approved for use by such utility and thereafter by other utilities
and municipalities. To date, the Company has sold and delivered over 450
PTR-1000 sets to 14 utilities and 3 municipalities, most of which are installed
and in service.

Following the PTR-1000, in 1993, the Company introduced its "98 Series"
Tone Products for water, gas, telephone and oil companies, waste water, traffic
control and airports. In 1994 the Company unveiled the Power Supply Series
(allowing the various utilities to power-up the equipment from any power
source), the "40 Series" for transmission of analog variable data (water levels,
gas pressures and temperature) and the Multiplexer Series, which permits the
transmission of up to 900 separate data points, again using a telephone line,
microwave link, or satellite. In 1994 the Company also introduced the "68
Series" tone products. This series is the "98 Series" repackaged mechanically
specifically for customers with older systems wanting to upgrade to DSP
technology without the expense of a complete mechanical installation. The "68
Series" offers the entire line offered by the "98 Series". In 1995, the Company
introduced a stand alone "98 Series" transmitter and receiver for field

installations and a wide range fiber optic interface for the Iniven products.
The fiber optic interface is also available as a stand alone coupling device. In
1996, the Company launched its industrial grade 1200 Baud Modem for data
transmission/communication.

Due to the end of the cold war and the downsizing of the American
military, the Company experienced unexpected sharp reductions of military
contracts in fiscal 1993 (the Company's fiscal year ends on July 31) resulting
in a 50% decline in the Company's sales for that year, down to $1,486,298 from
$2,997,308 in fiscal 1992. The sales of new products could not replace the
decrease in military sales. The Company, however, continued to pursue sales as
aggressively as its available resources would permit. Sales in fiscal 1994
increased to $2,044,860, a 37% increase over fiscal 1993. Sales in fiscal 1995
were $2,090,933 a 2% increase over fiscal 1994. Sales in fiscal 1996 were
$1,924,466 an 8% decrease from fiscal 1995. Revenues from the Company's military
product sales represented approximately 60%, 30% and 23% of sales of the Company
in fiscal 1994, 1995 and 1996, respectively, reflecting the Company's emphasis
on commercial sales and markets.

General Description; Products

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<PAGE>

Such products are used in radio and other transmissions, telephones and
telephone exchanges, air and traffic control, automatic transmission of data for

utilities, teleprinting of transmitted data such as news and stock market
information and for use by electric utilities in monitoring power transmission
lines for faults and/or failures. The Company's products are used by customers
engaged in or manufacturing equipment for the activities described. The
Company's products may be used independently or in combination with other
products to form a system type configuration, whereby the Company's equipment is
pre-assembled in a large cabinet with other equipment in a configuration that
would provide the end user with protection as well as operational status
displays.

Present Status/Business Product Description

The Company is presently engaged and focused in two basic market areas:

A) Military Sales - Direct contract sales to the military

- As subcontractor to systems producers

- Foreign governments

B) Commercial Sales (Under the tradename "INIVEN" (a Division of
Conolog))

- Direct sales to end users

- Sales to system assemblers

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<PAGE>

- Sales to contractors/installers

(A) Military Sales

Since 1992 the Company's engineering staff is dedicated to "INIVEN"
commercial designs and does not engage in any new designs for military
applications. The Company actively participates in bids only for parts the
Company has designed since inception in 1968. Presently there are approximately
400 designs that are applicable to these repeat residual sales.

These residual sales are primarily for the Company's electromagnetic wave
filters used in military radios, vehicles (cars, trucks or tanks), portable
(backpack), special signaling equipment and exchanges (as in field command
posts), weapon/missile guidance and control (patriot missile, tomahawk,
pave-paws), torpedo active signal recognition and differentiation mounted in the
nose cone of the torpedo (MK-30, Captor, MK-50 torpedoes), ship to ship teletype
signaling filters used in deployment of ships (UCC-1 and UCC-4 systems) as well
as many other signaling applications where accurate electromagnetic frequency
control is required.

The Company markets the above military sales directly and through
independent manufacturing sales representatives on a commission basis.

(B) Commercial "INIVEN" Sales and Products

"INIVEN" equipment is designed around four (4) core product groups:

(1) PTR-1000 Teleprotection Series
(Protective Tone Relaying Communications Terminal)

(2) Audio Tone & Telemetry Equipment
(Audio Tone Control, Telemetering and Data Transmission
Systems), which includes Series "98", "68", "40" and "GEN-1".

(3) Multiplex Supervisory Control System

(4) Communication Link Multihead Fiber Optic Couplers and
Industrial Grade 1200 Baud Modems.

(1) PTR-1000 Teleprotection Series

This product is designed for use exclusively by electric power generators
(electric utilities and cogenerators) in order to protect their transmission and
distribution lines. The PTR-1000, by monitoring

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<PAGE>

the output signal of the transmission equipment in less than one hundred of a
second protects the transmission and distribution lines.

The PTR-1000 are installed in pairs, one unit at each end of the line.
Each unit is connected and in constant communication with the other, as they
continuously monitor the line for faults. In the event of a fault occurring
(such as a downed line or a short circuit) at either end and when confirmed by
the receiving PTR-1000 unit, the line is immediately isolated for shut down,
averting costly damage and downtime.

The PTR-1000 system is composed of a transmitter, dual receivers, a logic
card (brain center and controller of the system), relay module, line interface
module and power supply module. The transmitters at each end are independent and
transmit (continuously) the status (information being monitored) at their end of
the line.

In the event of a fault, the information is transmitted to the PTR-1000 at
the other end of the line and once confirmed by both its receivers (this duality
is designed such that both receivers must agree before any action is taken), it
will, when programmed to do so, isolate that end of the line. Generation and
distribution of electric power entails expensive equipment at both ends of the
line. Faults causing interruption of transmission can cause costly replacement
of failed equipment and loss of revenue caused by downtime for repairs.

The PTR-1000 is designed for global use by electric utilities and any
entity generating power for its own consumption with resale of surplus power to
an electric utility, such as cities, municipalities, cooperatives and large
corporations that find it more economical to generate their own electricity.

The PTR-1000 target market is worldwide, as follows:

o New installations; i.e., new transmission lines, new distribution
segments, for utilities and cogenerators.

o Existing installations not properly protected, improving efficiency and
down time.

o Existing installations for upgrading to PTR-1000 technology, again
improving efficiency and down time.

Sales efforts for the PTR-1000 are presently being conducted by the
Company's marketing executives, through independent manufacturers'
representatives and through distributors. Sales are targeted primarily to the
largest utilities and co-generators.

According to McGraw-Hill, Inc. Electrical World (Electric Utilities of the
United States), in the United States alone, there are over 500 large entities
generating electricity. They are:

o Investor-owned

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<PAGE>

o Municipal Systems

o Cooperative Systems

o Federal, State and District systems.

To date , the Company has sold and delivered over 450 PTR-1000 sets to 14
utilities and 3 municipalities, most of which are installed and in service.

(2) Audio Tone and Telemetry Equipment

For many years there has been a need for a modularly independent system
that would permit a user, from a distance, to control functions such as opening
a valve, starting a motor, shutting down a compressor, changing a traffic
signal, control landing lights at an airport, activate a hazard warning on a
highway, and in return allow the user to receive information, such as the liquid
level in a tank, the pressure in a pipe, the rate of flow out of a compressor,
the flow of traffic, the status of a traffic light, airport lights, or
confirmation that a command was performed. Such information is transmitted and
received and the control functions are performed from a distance utilizing
telephone lines, microwave link or direct wire.

These applications, by their nature, can be accomplished with slow speed

signaling systems composed of a transmitter on one end and a receiver on the
other to carry out the necessary instructions provided by the transmitter. Each
set (transmitter/receiver combination) is called a channel. Because of the slow
speed, up to 30 channels could be made to transmit and receive signals, in
either direction on a single telephone line, microwave link or direct wired line
at the same time. This parallel transmission permits each transmitter/receiver
pair to be independent of all the others.

This product segment includes the first generation equipment, known as
GEN-1, followed by later generations which include technological improvements
and programmable capabilities to include:

o GEN-1 Series - First generation with electromagnetic modules and first
generation programmable modules without electromagnetic modules.

o "98" and "68" Series - The latest generation applies DSP and
microprocessor technology with full programmability, in the field or at
the factory.

o "40" Series - Designed to function with the "98" or "68" series; transmits
and receives variable analog data.

GEN-1 and GEN-1 Programmable Series

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<PAGE>

The diversity of applications for this equipment makes it available for a
wide range of users who are not restricted to a single industry. Typical
industrial uses include: the measurement of water and gas, waste water,
gasoline, oil, traffic, and electricity. Typical users include: utilities,
co-generators, airports, navy yards, telephone companies, paper and pulp
processors and wherever remote control and data acquisition is required.

Because of the ease of use and installation, there is much GEN-1 type
equipment installed and used in the United States by a wide spectrum of diverse
users. Since the Company's line has a distinct mechanical configuration, the
Company designed its GEN-1 Programmable units and other improvements as
replacements for existing units. These account for approximately 20% of the
Company's commercial sales. The Company's line of GEN-1 equipment is extensive
and provides the user with the ability to perform multiple control functions,
status monitoring as well as continuous variable data monitoring, such as a
level in a tank or pressure gauge.

Sales for this line are primarily for the replacement of existing
installations and for expansion of these installations where it would not be
economical to install the latest technology, which would not be mechanically
compatible.

Sales to this market are made in the same manner as the PTR-1000 market
except that manufacturers' representatives specialize in selling to this diverse
market.

"98," "68" and "40" Series

These series represent the Company's latest designs in the audio tone
equipment utilizing the more advanced DSP technology, which provides high
accuracy and long term stability. These features have allowed the Company to
greatly improve the scope, density and number of functions that can be performed
on a single phone line, microwave link or direct line.

Given this technology and the high-reliability and quality standards of
the Company's products, the Company has recently (first quarter 1994) started to
offer a 12 year warranty for all of its commercial products. This warranty has
been favorably received by customers. Based upon its past experience, the
Company does not believe that its extended warranty will result in any material
repair or replacement expenses.

Sales of these products are made by the same persons who sell the
Company's GEN-1 products, but are also directed to encompass more sophisticated
users with larger amounts of data and control points. The mechanical
configuration of the "98" series is more compact, permitting more equipment in a
given space, while performing many more functions when it is connected to the
"40" Series. The "68" Series is the "98" Series repackaged mechanically
specifically for customers with older systems permitting them to upgrade their
systems to DSP technology. The "40" Series, when connected to the "98" or "68"
in the same chassis, permits the continuous monitoring of variable data. Typical
applications for these products include transmission of the variable data (such
as volume, temperature, pressure and moisture) for water, gas, industrial gases,
oil , gasoline, transportation equipment and

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<PAGE>

telephone exchanges, and for use at airports, tunnels and bridges and for
security and electricity systems.

(3) Multiplex Supervisory (IM) Control System

This product is a response to the cost and scarcity of dedicated phone
lines (connections whereby the phone link is dedicated to one subscriber), and
enables customers with high volumes of supervisory data (where many functions
are monitored from a single site) to transmit data on fewer phone lines (i.e.,
with more data per channel, up to a maximum of 30 channels per line).

Using the "98" DSP Series as its communications link, the Company designed
the Multiplexer Supervisory Control System to handle 8 times the normal capacity
per channel. The microprocessor based system allows a single telephone line to
handle up to 900 data inputs.

This product line, because of its data density capability, may be utilized
for a very broad range of applications. This product has only recently been
introduced and the Company sales efforts for it are being conducted through its
existing independent manufacturers sales representatives.

(4) Fiber Optic Link and Data Modem

The expansion of fiber lines by the Company's customers and their need to
switch equipment from phone lines to fiber prompted the Company to design and
introduce a fiber-optic-coupler line to interface with the many different fiber
heads. In addition to complete data interface couplers the Company launched a
series of 1200 Baud Modems (Industrial Grade) for operation under the same
environmental specifications in line with the Company's products.

Since the downsizing of the American Military, the Company has actively
sought manufacturing subcontract orders to fill the production void created by
the severe drop in military production. In June 1996 the Company negotiated and
entered into a renewable annual agreement with the General Electric Company, GE
Electrical Distribution and Control and its participating affiliated companies
for the manufacture of sub-systems, board assemblies and magnetic filters and
other products consistent with the Company's expertise. The success of this
agreement has prompted the Company to pursue other system producers to more
fully utilize the Company's manufacturing capacity.

Competition

The market for the Company's products is very competitive. There are
several companies engaged in the manufacture of products of the type produced by
the Company, most of which are substantially larger and have substantially
greater name recognition or greater financial resources and personnel. The major
competitive factors include product quality and reliability, price, service and
delivery. Competition is expected to continue and intensify. The market is also
characterized by rapid

36
<PAGE>

technological changes and advances. The Company would be adversely affected if
its competitors introduced technologically superior products or offered these
products at significantly lower prices than the Company's products. See "Risk
Factors - Competition; Rapid Technological Change."

Marketing and Sales

In general, the Company's products are marketed by means of telemarketing
and customer contacts by the Company's direct sales force and through
independent manufacturing sales representatives and distributors.

Military - The Company markets its military sales directly and through
independent manufacturers sales representatives.

Commercial - The Company markets the PTR-1000 by means of Company sales
personnel, through independent manufacturers representatives, and through
distributors, focusing mainly on the largest utilities and co-generators.
In the United States alone there are over 500 large entities generating

electricity which are identified as investor-owned, municipal systems,
cooperative systems and federal, state and district systems. The Company
utilized a portion of the proceeds of the August 1995 Offering to expand
its sales efforts (including application engineering) and expand sales to
international markets. The Company markets it Gen-1 and Gen-1 Programmable
Series, as well as its "98" Series, "68" Series and "40" Series, in the
same way as the PTR-1000 except that the manufacturers representatives
used by the Company specialize in selling to the diverse markets that
utilize such products. The Company utilized a portion of the net proceeds
of the August 1995 Offering for international sales.

Largest Customers

Sales to the Company's major customer in fiscal 1996 (B.C. Hydro-Canada)
totaled $401,000 (20% of net sales). Sales to the Company's major customer in
fiscal 1995 (United States Government) totaled $424,849 (20% of net sales).
During fiscal 1994, sales to the Company's only major customer (Westinghouse
Electric Corp.-Naval Systems Division) totaled $597,000 (29% of net sales). None
of such customers has or had any material relationship other than business with
the Company. See "Risk Factors - Dependance on Large Customers."

Raw Materials; Inventory

The Company believes that it has adequate sources of raw materials
available for use in its business. The Company's products are assembled from a
variety of standard electronic components, such as integrated circuits,
transformers, transistors, passive components (ie., resistors, capacitors and
inductors), diodes and assorted hardware such as printed circuit boards,
connectors and faceplates. The Company is not dependent upon any single
supplier. The Company also purchases a number of other electronic components and
sub-assemblies from various suppliers. There has been no material increase

37
<PAGE>

in the cost of most raw materials and the Company has no reason to anticipate
any significant shortage of raw materials in the future. The Company generally
is required to maintain adequate amounts of raw material and parts inventories
to meet delivery requirements of customers and to assure itself of a continuous
availability of these items. See "Risk Factors-Reliance on Component
Manufacturers."

In the past the Company manufactured and held in its inventory finished
products pursuant to the military's specifications and based upon the military's
forecast for future quantities and delivery schedules. When those military
procurements were discontinued as a result of the end of the cold war and the
downsizing of the military establishment, the Company wrote off large portions
of its military inventory. The Company no longer manufactures inventory to meet
forecasts but only to fill specific orders. Therefore, the Company does not

anticipate any future large inventory build-ups or write-downs from military
products.

Manufacturing

Of the Company's 15,700 square feet that it occupies at 5 Columbia Road in
Somerville, NJ, approximately 10,000 square feet are dedicated to manufacturing.
The Company assembles, under normal workload conditions, all the products it
sells. To accommodate the peak demands that occur from time to time the Company
has developed a number of subcontractors to assemble boards to the Company's
specifications. All assemblies, however, are inspected and fully tested by the
Company's quality, engineering and testing departments. The Company maintains
test equipment and every product is burned-in (i.e., each product is run at full
power for 48 hours) and tested prior to shipment. This control, together with
design reliability, has permitted the Company to offer a 12-year warranty on all
its commercial products.

Research and Development; New Products

Amounts expended by the Company in the last three fiscal years for
research and development activities have not been material although the Company
is currently engaged in product design and development. The Company utilized a
portion of the net proceeds of the August 1995 Offering to design a fiber optic
digitizer and a 1200 baud modem which can be sold as a separate product or
jointly with the Company's products which will enable all the Company's INIVEN
products to transmit directly onto fiber optic cables, and thus open a new
market for the Company's products. The Company is also using a portion of the
August 1995 Offering proceeds to add designs that will extend its product
capability to handle new data inputs not presently available. There can be no
assurance that the Company will be able to successfully develop and add designs
to its products.

Patents and Trademarks

The Company does not have any patents covering any of its present
products. The Company uses the trademark INIVEN for its commercial products. The
Company believes that such trademark is recognized in the Company's industry.
The Company believes that its prospects are dependent primarily upon its ability
to offer its customers high quality, reliable products at competitive prices
rather

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<PAGE>

than on its ability to obtain and defend patents and trademarks. The Company
does not believe that its INIVEN trademark is of material importance to the
Company's business.

Backlog

As of July 31, 1995 and 1994, the Company had a backlog of approximately
$1,300,000 and $1,500,000, respectively. As of July 31, 1996, the Company had a

backlog of $3,400,000. It is anticipated that this backlog will be filled during
the balance of fiscal 1997 and the 1998 fiscal year ending July 31, 1998.
Approximately 75% of the Company's backlog relates to government contracts and
may be subject to cancellation under the terms of such contracts.

Foreign Operations

During fiscal 1994 the Company had no foreign sales. In fiscal 1996 and
1995 the Company had foreign sales of $401,000 to B.C. Hydron-Canada and
$140,000 to the Government of Israel, respectively.

Governmental Regulation

The Company's manufacturing facilities, in common with those of industry
generally, are subject to numerous existing and proposed Federal and state
regulations designed to protect the environment, establish occupational safety
and health standards and cover other matters. The Company believes that its
operations are in compliance with existing regulations and does not believe that
such compliance has had or will have any material effect upon its capital
expenditures, earnings or competitive position. With respect to military sales,
the Company is not subject to any special regulations. The products manufactured
are done so in accordance with accepted commercial practices.

Employees

As of July 31, 1996, the Company employed 42 persons, including 2 in
management, 3 in sales, 2 in clerical, 1 in accounting, 1 in purchasing, 3 in
engineering and 30 in production. The Company has enjoyed good labor relations
and has suffered no work stoppage.

Properties

The Company owned facilities, which management considers adequate for the
Company's present requirements, are located at 5 Columbia Road, Somerville, NJ.
The facilities, which are used for manufacturing, sales and its executive
offices, comprise 15,700 square feet.

The facility is encumbered by a lien, along with the Company's other
assets, securing indebtedness incurred in connection with the Credit Facility.
The Bank has deferred all payments of principal and interest under the Chase
Manhattan Note until April 16, 1997. If the Chase Manhattan

39
<PAGE>

Note is converted into 1,400,000 shares of Common Stock, the lien on the Company
facility will be released. See "Business Credit Facility" below.

Credit Facility

Background

In October 25, 1994, the Company and Chase Manhattan Bank (as successor by
mergers with Manufacturers Hanover Trust Company and Chemical Bank) (the "Bank")
restructured the Company's credit facility ("Credit Facility") between the
Company and the Bank that had been in effect since April 5, 1989.

Under the restructured terms the Credit Facility had been extended as
follows:

(i) Interest on the Credit Facility will accrue but not be payable
until July 31, 1995. Beginning on that date, interest payments
are to be made in arrears on the last day of each month, with
all unpaid interest previously accrued becoming due and
payable on November 30, 1995.

(ii) All principal on the Credit Facility and other amounts owing
to the Bank will become due and payable November 30, 1995.

The principal amount owing to the Bank at January 31, 1995 was $3,789,000
and the unpaid accrued interest was $584,728. The interest rate on the Credit
Facility is 3/4% above the Bank's publicly announced reference rate, which was
9.75% at January 31, 1995.

To secure payment under the Credit Facility, the Company granted the Bank
a first priority lien on all accounts receivable, inventory, equipment and
general intangibles of the Company and a lien on the Company's real property
located at 5 Columbia Road, Somerville, New Jersey 08876.

Payment of liabilities of the Company to the Bank under the Credit
Facility was guaranteed by Robert S. Benou, President of Company, to the extent
of $965,000 and Arpad J. Havasy, Executive Vice President of the Company, to the
extent of $492,500, and each had pledged all of his Common Stock and Series B
Preferred Stock to the Bank to secure their respective guarantees.

The Credit Facility contains various negative covenants, including (a)
limitations on indebtedness, (b) limitations on liens, (c) limitations on
contingent obligations, (d) limitations on capital expenditures, (e) prohibition
against mergers, consolidations, liquidation or dissolution, sale or lease of
all or a substantial part of its property, business or assets, (f) limitations
on dividends and stock acquisitions, (g) limitations on investments, loans and
advances, (h) prohibition of certain prepayments, (i) limitations on leases, (j)
prohibition of sale and leaseback arrangements and (k) prohibition against
subordinated debts.

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<PAGE>

Terms in Connection with August 1995 Offering

In connection with the August 1995 Offering, the Bank and the Company

agreed to restructure the Credit Facility as follows:

In connection with the August 1995 Offering, the Bank received from the
proceeds of such offering a cash payment of $250,000 (the "Cash Amount"). The
remaining debt, after giving effect to the payment to the Cash Amount was
restructured as follows: (1) $1,025,000 was structured as a five-year term loan
(the "Term Loan") bearing interest at the Bank's Reference Rate plus 125 basis
points, to be amortized over 10 years; $50,000 per year for the first two years,
$100,000 per year in the third and fourth years and $112,500 in the fifth year.
After the fifth year, the balance of the payments will be renegotiated at the
Bank's option; and secured by the existing collateral; and (2) All debt owing to
the Bank in excess of the Cash Amount and the Term Loan was converted into
375,000 shares of Common Stock of the Company (the "Bank Shares").

The Bank Shares have full voting rights and carry certain antidilution
protection with respect to any reduction in the exercise price of the Class A
Warrants. The Bank Shares carry piggyback registration rights which provide that
upon any subsequent offering of new registered shares (a "Subsequent Offering"),
the Company must include in such registration a portion of Bank Shares equaling
the lesser of 100% and the New Share Percentage. The New Share Percentage shall
be a fraction, the numerator of which is the total number of new registered
shares to be offered (excluding any of the Bank Shares to be registered
thereunder) and the denominator of which is the total number of common shares of
the Company issued and outstanding (including the Bank Shares) immediately prior
to the Subsequent Offering. The Bank may at any time sell all or a portion of
the Bank Shares in one or more private transactions, and may in addition, demand
up to two registrations of any or all of the Bank Shares at any time after July
31, 1997.

In addition, the Bank agreed to release the existing guarantees of Messrs.
Benou and Havasy on the effective date of the August 1995 Public Offering.
Finally, pursuant to the restructured Credit Facility the Bank was granted the
right to appoint a member to the Company's Board of Directors. See "Management."

New Terms of Credit Facility and Agreement with the Selling Securityholder

The principal amount owing to the Bank under the Company's Credit Facility
at July 31, 1996 was $1,012,500 and the unpaid accrued interest was $57,196. The
Bank and the Company have entered into the Conolog Corporation Allonge, dated as
of September 11, 1996, pursuant to which the Amended and Restated Term Note
dated as of August 2, 1995 between the Company and the Bank (the "Note") was
amended to permit the conversion by the Bank of the unpaid principal and
interest due under the Note into 1,400,000 shares of the Company's Common Stock.
The conversion right may be exercised by the Bank or its assignee. The Bank has
deferred all payments of principal and interest under the Note until April 16,
1997.

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<PAGE>

The Bank and CNL Holdings, Inc. ("CNL or the "Selling Securityholder")

have entered into an Option and Purchase, Sale and Assignment Agreement dated as
of September 12, 1996 (the "Option Agreement"). Under the Option Agreement the
Bank has granted an option to CNL to purchase all of the Bank's interest in (i)
the Amended and Restated Term Loan Agreement dated as of August 2, 1995 between
the Company and the Bank, (ii) the Note and (iii) the 375,000 shares of the
Company's Common Stock owned by the Bank. CNL paid $150,000 to the Bank for the
option, which has an exercise price of $1,500,000 (a balance of $1,350,000) and
an expiration date of April 15, 1997.

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<PAGE>

MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information regarding the officers
and directors of the Company as of the Effective Date.

NAME AGE POSITION
- ---- --- --------

Robert S. Benou 62 President and Director

Arpad J. Havasy 60 Executive Vice President, Secretary,
Treasurer and Director

Louis S. Massad 59 Director

Marc R. Benou 29 Vice President, Assistant Secretary and
Director

Thomas Fogg 61 Vice President-Engineering

Al Vnencak 49 Vice President-Sales and Marketing

The term of each director expires at the time of the next annual meeting
of stockholders. Each officer holds office at the pleasure of the Board of
Directors. The Company has no "significant" employees other than the executive
officers. There are no arrangements or understandings pursuant to which either
of the directors or officers was selected as such.

Robert S. Benou has served as President and a Director of the Company
since 1968. Mr. Benou is responsible for military products, new product
development and supervision of sales and marketing. Mr. Benou is a graduate of
Victoria College and holds a BS degree from Kingston College, England and a BSEE
from Newark College of Engineering, in addition to industrial management courses
at Newark College of Engineering. Robert S. Benou is the father of Marc R.
Benou.

Arpad J. Havasy has served as the Company's Executive Vice President and
Director since 1968. Mr. Havasy is a graduate of Electromos E's Gepeszeti
Technikum (Hungary) and the University of Budapest. In addition, Mr. Havasy has
attended courses at both Rutgers University and the American Management
Association. Mr. Havasy is on total disability.

Louis S. Massad has been a Director of the Company since April 1995. Mr.
Massad has been Vice President, Chief Financial Officer and Director of Computer
Power Inc. since 1986. Mr. Massad

43
<PAGE>

holds a BS and MS degree from Cairo University (Egypt) and an MBA from Long
Island University, New York.

Marc R. Benou joined the Company in 1991 and is responsible for material,
purchasing and inventory control. In March 1995, he was elected Vice President,
Assistant Secretary and a Director . Mr. Benou attended Lehigh and High Point
University and holds a BS degree in Psychology and a BS in Business
Administration and Management. Marc R. Benou is the son of Robert S. Benou, the
Company's President.

Thomas R. Fogg joined the Company in 1976 as Chief Engineer responsible
for analog and guidance projects. Since 1986, when he became Vice
President-Engineering, he led the design team in the development of the
Company's commercial products. Mr. Fogg holds a BSEE degree from Lafayette
College and a MSEE degree from Rutgers University. Mr. Fogg is a fellow of the
Institute of Electrical and Electronic Engineers and has published articles on
delay equalization and the use of crystal resonators.

Al Vnencak joined the Company in 1991 and is responsible for Iniven
product sales and marketing. In October 1995 he was elected Vice President of
Sales and Marketing. Mr. Vnencak received his electronics training while in the
US Navy with the 7th Fleet and was awarded a meritorious service medal for his
activities. Prior to joining the Company Mr. Vnencak was system engineering
manager and director of international sales for 21 years with RFL Industries,
Inc.

44
<PAGE>

Executive Compensation

The following table sets forth the cash compensation (consisting entirely
of salary) paid (or accrued for) by the Company to its President, the only
executive officer whose aggregate remuneration exceeded $100,000 in each of two
of the three Company's fiscal years ended July 31, 1995, 1994 and 1993:

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Other
Name and Annual
Principal Fiscal Comp-
Position Year-End Salary Bonus ensation Awards Payouts
- -------- -------- ------ ----- -------- ------ -------

Restr-

icted Options/ LTIP All Other
Stock SARs Payouts Compensation
Awards
<S> <C> <C>
Robert Benou, 1996 $150,000
President (1)
1995 $150,000
1994 $170,000

</TABLE>

Percentage of Outstanding Shares(1)
- ----------
(1) See "Certain Transactions".

The Company did not grant any stock options or stock appreciation rights
during the fiscal year ended July 31, 1996 to any of its officers, directors or
employees. As of July 31, 1996 none of them had any outstanding stock options or
stock appreciation rights. Furthermore, none of them received awards under
long-term incentive plans that are stock based during the three fiscal years
referred to above. However, these and other benefits may be adopted in the
future if they are authorized by the Board of Directors.

Stock Option Plan

On May 15, 1995, the Board of Directors of the Company adopted and on
August 14, 1995, the shareholders approved the Conolog Corporation 1995/1996
Stock Option Plan (the "Option Plan"). The Option Plan is designed to permit the
Company to grant either incentive stock options under Section 422A of the
Internal Revenue Code (the "Code") or nonqualified stock options. Under the
Option Plan,

45
<PAGE>

a Stock Option Committee (the "Option Committee") of the Board is authorized to
grant options to purchase up to 200,000 shares of stock to key employees,
officers, directors and consultants of the Company. The Option Committee
administers the Option Plan and designates the optionees, the type of options to
be granted (i.e., nonqualified or incentive stock options), the number of shares
subject to the options, and the terms and conditions of each option. The terms
and conditions include the exercise price, date of grant, and date of exercise
of each option. An employee may, at the discretion of the Option Committee, be
permitted to exercise an option and make payment by giving a personal note.

Incentive stock options may only be granted to employees of the Company
and not to directors or consultants who are not so employed. The exercise price
for incentive stock options must be at least one hundred percent (100%) of the
fair market value of the Common Stock as determined by the Option Committee on
the date of grant. All incentive stock options under the Option Plan must be
granted within ten (10) years from the date of adoption of the Option Plan and

each option must be exercised, if at all, within ten (10) years of the date of
grant. In no event may any employee be given incentive stock options whereby
more than $100,000 of options become exercisable for the first time in a single
calendar year. All incentive stock options must be exercised by an optionee
within three (3) months after termination of the optionee's employment, unless
such termination is as a result of death, disability or retirement. In the event
an optionee's employment is terminated as a result of death or disability, such
optionee or his designated beneficiary shall be entitled to exercise any and all
options for a period of twelve (12) months after such termination. If an
optionee's employment is terminated as a result of retirement, the optionee
shall be entitled to exercise his options for a period of twenty four (24)
months following such termination.

Nonqualified stock options under the Option Plan are generally subject to
the same rules as discussed above. Nonqualified stock options may, however, also
be granted to directors and consultants, whether or not such individuals are
employees of the Company. The exercise price for nonqualified stock options may
not be granted at less than eighty-five percent (85%) of the fair market value
of the shares on the date of grant.

No incentive stock options or nonqualified options have been granted.

Employment Agreements

The Company does not have employment agreements with any of its executive
officers. See "Risk Factors - Dependence on Management."

Chase Manhattan Bank's Right to Appoint Director

Under the terms of the Credit Facility, the Bank has the right, for a
period of three years through August 16, 1998, to nominate one person to serve
on the Company's Board of Directors, and upon such nomination the Board shall
take the action necessary to cause the Bank's nominee to be elected to the
Board. If the Bank does not exercise this right, it may appoint an advisor, who
will be entitled to attend

46
<PAGE>

all meeting of the Board of Directors. To date, the Bank has not exercised
either right. See "Business - Credit Facility".

CERTAIN TRANSACTIONS

On August 16, 1995, the Company effected a 1-for-100 reverse stock split
of its Common Stock on all shares of Common Stock outstanding as of that date.

On August 16, 1995, holders of 19,360 shares of the Company's Series B
Preferred Stock (Robert Benou and Arpad J. Havasy, officers and directors of the
Company) converted their shares of Series B Preferred Stock into 387,200 shares
of Common Stock (3,872 post-split shares).

On August 16, 1995, $381,533 of the $420,179 of accrued dividends on the

Series B Preferred Stock at December 31, 1994 were converted into 76,306 shares
of Common Stock and the remaining dividends due to such holders (Messrs. Benou
and Havasy) were waived.

As of April 30, 1995, Messrs. Benou and Havasy have advanced $139,196 to
the Company for working capital purposes. No formal repayment plan or interest
charges have been established at this time. In addition, the officers have not
been paid their salaries since August 1, 1992.

On August 16, 1995, accrued salaries of $309,109 owed by the Company to
Mr. Benou were converted into 61,822 shares of Common Stock

Payment of the Company's liabilities to the Bank under the Credit Facility
were guaranteed by Mr. Benou to the extent of $965,000 and Mr. Havasy to the
extent of $492,000. Their respective guarantees were secured by a pledge to the
Bank of all Common Stock and Series B Preferred Stock owned by each of them. As
a result of the August 1995 Offering, the Bank released the guarantees.

Article Eighth of the Company's Certificate of Incorporation provides that
the Company shall, to the full extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, indemnify all persons
whom it may indemnify pursuant thereto.

Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to provide indemnification to a director, officer,
employee or agent of the corporation, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding, if such party acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful as
determined in accordance with the statute, and except that with respect to any
action which results in a judgment against the person and in favor of the
corporation the corporation may not indemnify unless a court determines that the
person is fairly and reasonably entitled to the indemnification.

47
<PAGE>

Section 145 further provides that indemnification shall be provided if the
party in question is successful on the merits.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person in connection with the securities
being registered) the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of

appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The Company has adopted a policy that transactions with affiliated
entities or persons will be on terms no less favorable than could be obtained
from unrelated parties and that all transactions between the Company and its
officers, directors, principal shareholders and affiliates will be approved by a
majority of the Company's Board of Directors.

48
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth the beneficial ownership of outstanding
shares of Common Stock of the Company as of the date hereof by any person who,
to the knowledge of the Company, owns beneficially more than 5% of the
outstanding Common Stock, by all directors of the Company, and by the directors
and officers of the Company as a group.

Name and Amount and Percentage of Outstanding Shares(1)
Address of Nature of -----------------------------------
Beneficial Owner Beneficial Ownership Before Offering After Offering(6)
---------------- -------------------- --------------- -----------------
Robert S. Benou(2) 1,904,614(2) 78.3%(3) 5.3%

3.Arpad J. Havasy(2) 33,397 3. 2% 1.4%

Chase Manhattan Bank(4) 1,775,000 72.9% _____
270 Park Avenue
New York, NY 10017

CNL Holdings, Inc.(5) 1,775,000 72.9% _____
750 Lexington Ave
New York, NY 10022

Marc R. Benou(2) ______ ______ ______

Louis S. Massad(2) ______ ______ ______

Thomas Fogg(2) 200 * *

All Directors and Officers
as a Group (5 persons) 1,938,211(3) 81.5%(3) 6.7%

- --------
(1) Does not include treasury stock. See "Financial Statements". Does not
include possible issuance of (i) 1,135,750 shares of Common stock issuable
upon exercise of 1,135,750 Class A Warrants, (ii) 41,000 shares of Common
Stock issuable upon exercise of a Unit Purchase Option issued to the
Public Offering Underwriter and (iii) 20,500 shares of Common Stock

issuable upon exercise of Class A Warrants contained in such Unit Purchase
Option.

(2) The address for these individuals is c/o Conolog Corporation, 5 Columbia
Road, Somerville, New Jersey 08876.

(3) This amount includes 1,775,000 shares which CNL Holdings, Inc. (the
"Selling Securityholder") has the option to purchase from the Chase
Manhattan Bank (the "Bank") of which 375,000 sharesshares esently owned by
the Bank and 1,400,000 may be acquired by conversion of the Chase
Manhattan Note. Mr. Benou has the sole power to vote in the event the
Selling Securityholder exercises its option to purchase the shares of
Common Stock and execises the conversion rights of the Chase Manhattan
Note. See "Business - Credit Facility - New Terms of Credit Facility and
Agreement with the Selling Securityholder."

(4) See "Business - Credit Facility." This amount includes conversion of the
Chase Manhattan Note into 1,400,000 shares of Common Stock.

(5) Includes 375,000 shares presently owned by Chase Manhattan Bank and
1,400,000 shares of Common Stock issuable upon conversion of the Chase
Manhattan Note, all of which are subject to an option to purchase by CNL
Holdings, Inc., the Selling Securityholder. CNL Holdings, Inc. is a
Delaware corporation and is owned by James Solakian and Dune Holdings,
Inc. Dune Holdings, Inc. is a Delaware corporation owned by Randolph Pace
and Judith Pace. See "Business - Credit Facility" and "Selling
Securityholder and Plan of Distribution."

(6) Assumes the sale of 1,775,000 shares of Common Stock by the Selling
Securityholder.

* Less than 1%

49
<PAGE>

DESCRIPTION OF SECURITIES

Capitalization

The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 2,000,000 shares of Preferred Stock. On the date of this
Prospectus, the Company had 1,032,639 shares (2,432,639 assuming conversion of
the Chase Manhattan Note) of Common Stock outstanding (not including treasury
stock), 155,000 shares of Series A Preferred Stock outstanding (162,000
authorized) and 1,790 shares of Series B Preferred Stock outstanding (50,000
authorized).

Common Stock

The Company has 1,032,639 shares (2,432,639 assuming conversion of the

Chase Manhattan Note) of Common Stock outstanding (not including treasury
stock).

Holders of the Common Stock are entitled to one vote for each share in the
election of directors and in all other matters to be voted on by the
stockholders. There is no cumulative voting in the election of directors. The
By-laws of the Company require that only a majority of the issued and
outstanding shares of Common Stock must be represented to constitute a quorum
and to transact business at a stockholders meeting.

Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors with respect to the Common
Stock out of funds legally available therefor and, in the event of liquidation,
dissolution or winding up of the Company, to share ratably in all assets
remaining after payment of liabilities and payments to holders of Preferred
Stock. (See "Preferred Stock" below.) There are presently no plans to pay
dividends with respect to the shares of Common Stock. See "Dividends". The
holders of Common Stock have no preemptive or conversion rights and are not
subject to further calls or assessments. There are no redemption or sinking fund
provisions applicable to the Common Stock. The Common Stock currently
outstanding is, and the Common Stock issuable upon exercise of the Warrants
(described below) and payment of the $6.00 per share exercise price will, when
issued, be validly issued, fully paid and nonassessable.

Preferred Stock

The Company is authorized to issue 2,000,000 shares of Preferred Stock,
issuable in series, of which there are outstanding 155,000 shares of Series A
Preferred Stock, $.50 par value (162,000 authorized) and 1,790 shares of Series
B Preferred Stock, $.50 par value (50,000 authorized).

Holders of Series A Preferred Stock are entitled to receive, out of funds
legally available therefor, dividends at the rate of 4% per annum ($.02 per
share) of the par value thereof. The Series A Preferred Stock has no voting
rights. Series A Preferred Stock ranks senior to all other capital stock of the
Company and upon dissolution, holders of such shares are entitled to receive
100% of the par value

50
<PAGE>

thereof and all accrued and unpaid dividends prior to any payment to any holder
of capital stock of the Company. In addition, each share of Series A Preferred
Stock may be exchanged for one (1) share of Common Stock upon surrender of the
Series A Preferred Stock and payment of $1,200 per share. The Company may redeem
the Series A Preferred Stock at $.50 per share plus accrued and unpaid
dividends. As of July 31, 1996, there was $83,700 in accrued and unpaid
dividends.

Holders of Series B Preferred Stock are entitled to receive, out of funds
legally available therefor, dividends at the rate of $.90 per share. The Series
B Preferred Stock has no voting rights. Series B Preferred stock ranks senior to
all capital stock of the Company but junior to the Series A Preferred Stock, and
upon dissolution, holders of such shares are entitled to receive 100% of the par
value thereof and all accrued and unpaid dividends prior to any payment to any
holder of capital stock of the Company but after payment to the holders of
Series A Preferred Stock. In addition, each share of Series B Preferred Stock is
convertible into .20 shares of Common Stock. As a result of the 1-for-100
reverse split on the Effective Date, the total number of shares of Common Stock
that may be issued upon conversion of the Series B Preferred Stock is 358. The
Company may redeem the Series B Preferred Stock at $15.00 per share plus accrued
and unpaid dividends. As of July 31, 1996, there was $23,364 in accrued and
unpaid dividends.

In connection with the agreement between the Company and CNL, CNL has
agreed to loan up to $2,500,000 to the Company under certain circumstances. Each
loan will be evidenced by a Note bearing interest at the rate of 4% per annum
and will be due 12 months from the date of such Loan. At maturity, the Company
will have the option to pay each Loan, together with all accrued interest
thereon, by issuing shares of a new Series C Preferred Stock (the "Series C
Preferred") having a value of $5.00 per share for purposes of such repayment.

The Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. At present, the Company has no other
plans to issue any additional shares of Preferred Stock.

51
<PAGE>

Warrants

In connection with the August 1995 Offering and with bridge financing that
preceded such offering, the Company issued 1,135,750 Class A Warrants. Each
Redeemable Class A Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $6.00 from August 17, 1996 until August 16,
1998, subject to certain adjustments. The redeemable Warrants may be exercised
in whole or in part.

The redeemable Warrants were issued under a warrant agreement dated as of
August 16, 1995 (the "Warrant Agreement") between the Company and Continental
Stock Transfer & Trust Company (the "Warrant Agent"). The following is a general
summary of certain provisions contained in the Warrant Agreement and is
qualified in its entirety by reference to the Warrant Agreement, a copy of which
has been filed as an exhibit to the Registration Statement, of which this
Prospectus is a part.

The Board of Directors of the Company has the right to amend the terms of
the Warrant Agreement at its discretion to, among other things, reduce the
exercise price or extend the exercise period of the Warrants; provided however,
that no amendment adversely affecting the rights of the holders of Warrants may
be made without the approval of the holders of a majority of the affected
Warrants.

At any time during the exercise period the Company has the right to redeem
all the Class A Warrants at a price of $.05 per Warrant upon not less than 30
days' prior written notice; provided that before any redemption of Class A
Warrants can take place, the average closing price of the Company's Common Stock
as reported on Nasdaq shall have been $7.20 per share for 20 consecutive trading
days ending within 15 days prior to the date on which notice of redemption is
sent.

In order for a holder to exercise his or her redeemable Warrants, and as
required in the Warrant Agreement, there must be a current registration
statement on file with the Securities and Exchange Commission and various state
securities commissions to continue registration of the shares of Common Stock
underlying such warrants. The Company will be required to file post-effective
amendments when events require such amendments. There can be no assurance that
the registration statement can be kept current. If it is not kept current for
any reason, the redeemable Warrants will not be exercisable and will be deprived
of any value. The Company has agreed to use its best efforts to maintain a
current registration statement to permit the issuance of the Common Stock upon
exercise of the redeemable Warrants.

Holders of the redeemable Warrants will be protected against dilution of
the interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, stock dividends,
stock-splits, reclassifications and mergers. In the event of the complete
liquidation and dissolution of the Company, the redeemable Warrants terminate.
Holders of the redeemable Warrants will not have voting power and will not be
entitled to dividends. In the event of liquidation, dissolution or winding up of
the Company, holders of the redeemable Warrants will not be entitled to
participate in the Company's assets.

52
<PAGE>

Pursuant to the Underwriting Agreement in the August 1995 Offering, the
Company has agreed to pay to the Public Offering Underwriter and/or any
registered broker-dealer which is a member of the National Association of
Securities Dealers, Inc. ("NASD") a commission equal to four percent of the

exercise price of each redeemable Warrant exercised provided: (1) at least one
year has elapsed from August 16, 1995, (2) the market price for the Common Stock
is greater than the exercise price of the redeemable Warrants; (3) the Public
Offering Underwriter or such other NASD broker-dealer member has solicited the
holder to exercise the redeemable Warrant with such solicitation being confirmed
in writing by each holder; and (4) the compensation arrangements were disclosed
to the holder at the time of exercise, such disclosure being confirmed in
writing by said holder. The commission is further conditioned upon the Company's
Warrant Agent being furnished by the Public Offering Underwriter or NASD
broker-dealer member with a certificate stating that:

(i) the redeemable Warrants exercised were not held in a discretionary
account;

(ii) the Public Offering Underwriter or the NASD member did not, within 10
business days immediately preceding the solicitation of the exercise of
the redeemable Warrant or the date of such exercise, bid for or purchase
the Common Stock of the Company or any securities of the Company
immediately convertible into or exchangeable for the Common Stock
(including the redeemable Warrants and the Preferred Stock) or otherwise
engage in any activity that would be prohibited by Rule 10b-6 under the
Securities Exchange Act of 1934, as amended, to one engaged in a
distribution of the Company's securities; and

(iii) in connection with the solicitation, the Public Offering Underwriter
and/or the NASD member disclosed to the person exercising the redeemable
Warrant the compensation it would receive upon exercise of the redeemable
Warrant.

Transfer Agent/Warrant Agent

The Company's transfer agent for the Common Stock and the Warrants is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004. Continental Stock Transfer & Trust Company also serves as the Warrant
Agent for the Warrants.

SHARES AVAILABLE FOR FUTURE SALE

Immediately prior to the sale of the Common Stock hereunder, the Company
had an aggregate of 1,032,639 shares of its Common Stock issued and outstanding,
538,687 of which are "restricted securities," which may be sold only in
compliance with Rule 144 under the Securities Act of 1933, as amended. 375,000
of the 538,687 shares are being registered hereunder. Rule 144 provides, in
essence, that a person holding restricted securities for a period of two years
after payment therefor may sell, in brokers' transactions or to market makers,
an amount not exceeding 1% of the outstanding class of securities being sold, or
the average weekly reported volume of trading of the class of securities being
sold over a four-week period, whichever is greater, during any three-month
period. (Persons who are not

53
<PAGE>

affiliates of the Company and who had held their restricted securities for at
least three years are not subject to the volume or transaction limitations.) Any
such sales could have a material adverse effect on the market price for the
Common Stock, should a trading market develop.

54
<PAGE>

SELLING SECURITYHOLDER AND PLAN OF DISTRIBUTION

The Registration Statement of which this Prospectus is a part relates to
the offer and sale of 1,775,000 shares of Common Stock by CNL Holdings, Inc.
(hereinafter referred to as "CNL" or the "Selling Securityholder"). For a
description of the transaction relating to the shares of Common Stock held by
CNL see "Business -Credit Facility - New Terms of Credit Facility and Agreement
with the Selling Securitiyholder." Sales of the shares of Common Stock under
this Prospectus by CNL or even the potential of such sales may have an adverse
effect on the market price of the Company's securities. The Company will not
receive any of the proceeds from the sale of the shares of Common Stock by CNL.
However, pursuant to an agreement between the Company and the Selling
Securityholder, the Selling Securityholder may loan funds, in certain
circumstances, to the Company. See "Business - Credit Facility-- New Terms of
Credit Facility and Agreement with the Selling Securityholder." The resale of
the Securities of the Selling Securityholder is subject to prospectus delivery
and other requirements of the Securities Act of 1933, as amended (the "Act").

The securities offered thereby may be sold from time to time directly by
the Selling Securityholder. Alternatively, the Selling Securityholder may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholder may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholder in connection with such sales of securities. The Selling
Securityholder and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.

At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a prospectus will be distributed
which will set forth the number of securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for securities purchased from
the Selling Securityholder and any discounts, commissions or concessions allowed
or reallowed or paid to dealers, and the proposed selling price to the public.

Under the Exchange Act, and the regulations thereto, any person engaged in

a distribution of the securities of the Company offered by the Selling
Securityholder may not simultaneously engage in market-making activities with
respect to such securities of the Company during the applicable "cooling off"
period (9 days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Securityholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rule 10b-6 and 10b-7, in connection
with transactions in such securities, which provisions may limit the timing of
purchase and sales of such securities by the Selling Securityholder.

<PAGE>

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

LEGAL MATTERS

The validity of the securities offered hereby has been passed upon for the
Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York
10022.

EXPERTS

The financial statements of Conolog Corporation have been included herein
and in the Registration Statement in reliance upon the report of Rosenberg Rich
Baker Berman & Company, independent certified public accounts, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by the
Company can be inspected and copied (at prescribed rates) at the Commission's
Public Reference Section, 450 Fifth Street, NW, Washington, D.C., as well as the
New York Regional Office, Seven World Trade Center, New York, New York, and the
Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois.

The Company has filed with the Commission a registration statement on Form
S-1 (herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus forms a part. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to the
Registration Statement.

<PAGE>

Form 10-K - Item 14(a)(1) and (2)

Index to the Financial Statements

Conolog Corporation

July 31, 1996

The following financial statements of the registrant are included in Item 14:

Balance Sheets - July 31, 1996 and 1995 ........................ F-2

Statements of Income-Years Ended July 31, 1996,
1995 and 1994 ................................................. F-3

Statements of Stockholders' Equity (Deficiency) - Years
Ended July 31, 1996, 1995 and 1994 ............................ F-4

Statements of Cash Flows - Years Ended
July 31, 1996, 1995 and 1994 .................................. F-5

Notes to Financial Statements .................................. F-6-10

<PAGE>

[Letterhead of Rosenberg Rich Baker Berman & Company]

Independent Auditors' Report

Board of Directors
Conolog Corporation

We have audited the accompanying balance sheets of Conolog Corporation at July
31, 1996 and 1995, and the related statements of income, stockholders' equity
(deficiency) and cash flows for each of the three years in the period ended July
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Conolog Corporation at July 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended July 31, 1996 in conformity with generally
accepted accounting principles.

/s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey

October 8, 1996

F-1

<PAGE>
Conolog Corporation
Balance Sheets

<TABLE>
<CAPTION>
July 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash $ 178,213 $ 27,577
---------- ----------
Accounts receivable - less allowances of $14,000
and $10,000 in 1996 and 1995, respectively 304,020 171,541
---------- ----------
Inventories
Finished goods 1,494,289 529,812
Work-in-process 129,675 831,410
Materials and supplies 1,313,816 1,236,905
---------- ----------

2,937,780 2,598,127
Other current assets 43,517 25,683
Deferred tax asset - 492,352
Deferred offering costs - 86,154
---------- ----------

3,463,530 3,401,434
---------- ----------

Property, Plant and Equipment
Land and improvements 34,524 34,524
Building and improvements 659,477 651,977
Machinery and equipment 1,289,578 1,298,844
Furniture and fixtures 330,735 304,472
---------- ----------

2,314,314 2,289,817
Less allowance for depreciation and amortization 1,880,408 1,820,922
---------- ----------

433,906 468,895
---------- ----------

Other assets 30,398 11,906
---------- ----------

Total Assets $ 3,927,834 $ 3,882,235
========== ==========
</TABLE>

July 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Liabilities
Current Liabilities
Note payable - bank $ 1,012,500 $ 3,798,000
Accounts payable 280,629 287,630
Accrued payroll 41,716 499,761
Accrued interest 64,699 654,618
Bridge loan - 200,000
Other accrued expenses 115,723 135,936
Current maturities of capitalized lease obligations 33,282 54,660
---------- ----------
Total Current Liabilities 1,548,549 5,630,605
---------- ----------

Other Liabilities
Capitalized lease obligations, less current maturities 4,973 34,103
Due to officers - 161,705
---------- ----------
4,973 195,808
---------- ----------
Stockholders' Equity (Deficiency)
Preferred Stock, par value $.50; Series A; 4%
cumulative; 162,000 shares authorized; 155,000
shares issued and outstanding 77,500 77,500
Preferred Stock, par value $.50; Series B; $.90
cumulative; 50,000 shares authorized; issued and
outstanding 1,167 shares in 1996 and 21,321 in 1995 597 10,661
Common Stock, par value $1.00; 6,000,000 shares
authorized; issued 1,035,186 shares in 1996 and
52,239 in 1995, including 8,776 shares held in
Treasury 1,035,186 52,239
Additional Paid-In Capital 4,401,636 952,994
Retained Earnings (Deficit) (3,008,873) (2,905,838)
Treasury Shares at Cost (131,734) (131,734)
---------- ----------
Total Stockholders' Equity (Deficiency) 2,374,312 (1,944,178)
---------- ----------

Total Liabilities and Stockholders' Equity $ 3,927,834 $ 3,882,235
========== ==========

</TABLE>

See notes to the financial statements.
F-2

<PAGE>

Conolog Corporation
Statements of Income

<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Sales and other income $ 1,924,466 $ 2,090,933 $ 2,044,860
----------- ---------- ----------

Costs and Expenses:
Cost of products sold 1,242,001 1,270,771 1,067,560
Selling, general and administrative 946,954 924,524 852,951
Interest 131,854 253,686 362,317
Write-off of obsolete or excess
inventories 50,281 656,248 944,970
----------- ---------- ----------

2,371,090 3,105,229 3,227,798
----------- ---------- ----------

Loss Before Income Taxes and Extraordinary
Items (446,624) (1,014,296) (1,182,938)

Income taxes (benefit) 200 (492,252) 50
----------- ---------- ----------

Net Loss Before Extraordinary Items (446,824) (522,044) (1,182,988)

Extraordinary Item 740,376 - -
----------- ---------- ----------

Net Income (Loss) $ 293,552 $ (522,044) $(1,182,988)
=========== ========== ==========

Earnings (Loss) Per Share of Common Stock $ .28 $ (.12) $ (.27)
=========== ========== ==========

</TABLE>

See notes to the financial statements.

F-3

<PAGE>

Conolog Corporation
Statement of Stockholders' Equity (Deficiency)

<TABLE>
<CAPTION>
Total
Series A Series B Additional Retained Stockholders'
Preferred Preferred Common Paid-in Earnings Treasury Equity
Stock Stock Stock Capital (Deficit) Stock (Deficiency)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 $ 77,500 $ 10,661 $ 52,239 $ 952,994 $(1,200,806) $ (131,734) $ (239,146)

Net loss for the year - - - - (1,182,988) - (1,182,988)
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at July 31, 1994 77,500 10,661 52,239 952,994 (2,383,794) (131,734) (1,422,134)

Net loss for the year - - - - (522,044) - (522,044)
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at July 31, 1995 77,500 10,661 52,239 952,994 (2,905,838) (131,734) (1,944,178)

Public stock offering - (10,064) 982,947 3,448,642 (396,587) - 4,024,938

Net income for the year - - - - 293,552 - 293,552
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at July 31, 1996 $ 77,500 $ 597 $ 1,035,186 $ 4,401,636 $(3,008,873) $ (131,734) $ 2,374,312
========== ========== ========== ========== ========== ========== ==========

</TABLE>

See notes to the financial statements.

F-4

<PAGE>

Conolog Corporation
Statements of Cash Flows

<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $ 293,552 $ (522,044) $ (1,182,988)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities
Deferred income taxes 492,352 (492,352) -
Depreciation and amortization 64,994 60,396 57,529
Gain on disposition of equipment (3,420) - -
Provision for losses on accounts receivables 9,000 - (28,561)
(Increase) Decrease in Operating Assets
Accounts receivable (141,479) 74,529 (58,051)
Inventories (339,653) 392,058 874,989
Other current assets (17,834) (3,394) 22,555
Increase (Decrease) in Operating Liabilities
Accounts payable (7,001) 12,330 38,459
Accrued expenses and other liabilities (1,068,177) 417,484 398,239
----------- ---------- ------------
Net Cash Provided (Used) by Operating Activities (717,666) (60,993) 122,171
----------- ---------- ------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment (43,163) (19,625) (44,675)
Proceeds from sale of equipment 18,666 - -
----------- ---------- ------------
Net Cash Used in Investing Activities (24,497) (19,625) (44,675)
----------- ---------- ------------
Cash Flows From Financing Activities
Deferred offering costs 86,154 (86,154) -
Increase from public stock offering 4,421,525 - -
Proceeds from long-term borrowings - - 75,000
Increase (Decrease) in bridge loan (200,000) 200,000 -
Repayments of long-term borrowings (2,836,008) (38,681) (53,098)
(Increase) reductions in other assets (20,580) 325 20,672
Dividends paid (396,587) - -
Increase (decrease) in due to officers (161,705) 17,302 (137,333)
----------- ---------- ------------
Net Cash Provided (Used) by Financing
Activities 892,799 92,792 (94,759)
----------- ---------- ------------
Net Increase (Decrease) in Cash 150,636 12,174 (17,263)
Cash at Beginning of Period 27,577 15,403 32,666

----------- ---------- ------------
Cash at End of Period $ 178,213 $ 27,577 $ 15,403
=========== ========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest paid $ 772,773 $ 102,816 $ 90,917
Taxes paid $ 125 $ 50 $ 50
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Capitalized lease obligations incurred for use of - 56,550 -
equipment $ $ $

</TABLE>

See notes to the financial statements.

F-5

<PAGE>

Conolog Corporation
Notes to the Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business
The principal business activity of Conolog Corporation (the
"Company") is the design, manufacturing and distribution of small
electronic and electromagnetic components and subassemblies for use
in telephone, radio and microwave transmission and reception and
other communication areas. The Company's products are used for
transceiving various quantities, data and protective relaying
functions in industrial, utility and other markets. The Company's
customers include primarily industrial customers, which include
power companies and various branches of the military.

Revenue Recognition
Sales are generally recognized when the products are shipped. Sales
under certain fixed-price-type contracts, where progress payments
are received, are recognized when work is performed.

Inventories
Inventories are stated principally at average cost which is not in
excess of market.

Property, Plant and Equipment
Property, plant and equipment are carried at cost, less allowances
for depreciation and amortization. Depreciation and amortization are
computed by the straight-line method over the estimated useful lives
of the assets.

Income (Loss) Per Share of Common Stock
Income (loss) per share of common stock is computed by dividing net
earnings (loss) (after dividends on preferred shares) by the
weighted average number of shares of Common Stock outstanding during
the year. The effect of assuming the exchange of the Series A
Preferred Stock and Series B Preferred Stock in 1996 would be
anti-dilutive.

Income Taxes
Deferred income taxes have been provided for in accordance with
Statement No. 109 of the Financial Accounting Standards Board.
Deferred income taxes arise from timing differences resulting from
income and expense items reported for financial accounting and tax
purposes in difference periods. Deferred taxes are classified as
current or noncurrent, depending on the classification of the assets
and liabilities to which they related. Deferred taxes arising from
timing differences that are not related to an asset or liability are

classified as current or noncurrent depending on the periods in
which the timing differences are expected to reverse.

Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.

F-6
<PAGE>

Conolog Corporation
Notes to the Financial Statements

NOTES PAYABLE - BANK

On August 16, 1995, the Bank exchanged debt obligations for (a) 250,000
cash; (b) $1,205,000 Five-year term loan and (c) 375,000 shares of Common
Stock.

The five-year term loan of $1,025,000 bears interest at the Bank's
refinance rate, plus 1 1/4% to be amortized as follows:

- eight (8) quarterly payments of $12,500, beginning October
1995 through July 1997,

- eight (8) quarterly payments of $25,000, beginning October
1997 through July 1999,

- three (3) quarterly payments of $28,125, beginning October
1999 and ending April 2000,

- a balloon payment of $640,625, due July 2000.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As a result of the above transaction, the Company realized a $1,232,728

gain on debt compromise. In addition, the Bank released the existing
guarantees of Messrs. Benou and Havasy on the Closing Date.

At July 31, 1996, the Company was in default with the bank. The company is
negotiating the total bank debt to equity. (See Subsequent Events Note.)

DUE TO OFFICERS

Effective July 31, 1995 interest has been accrued from inception on these
advances at the cumulative rate of 12% of the outstanding balances. Total
accrued interest on these advances, included in accrued interest in the
accompanying financial statements, is $7,563 and $65,889 for the years
ended at July 31, 1996 and 1995.

CAPITAL STOCK

The Series A Preferred Stock provides 4% ($.02 per share) cumulative
dividends, which were $83,700 ($.54 per share) in arrears at July 31,
1996. In addition, each share of Series A Preferred Stock may be exchanged
for one share of Common Stock upon surrender of the Preferred Stock and
payment of $1,200 per share. The Company may redeem the Series A Preferred
Stock at $.50 per share plus accrued and unpaid dividends.

The Series B Preferred Stock provides cumulative dividends of $.90 per
share which were $23,364 ($20 per share) in arrears at July 31, 1996. In
addition, each five shares of Series B Preferred Stock is convertible into
1 share of Common Stock. The Company may redeem the Series B Preferred
Stock at $15 per share plus accrued and unpaid dividends.

The Company has reserved 156,167 shares of Common Stock for Series A and B
Preferred Stock.

F-7
<PAGE>

Conolog Corporation
Notes to the Financial Statements

WRITE-OFF OF OBSOLETE OR EXCESS INVENTORIES

During 1996, the Company recorded a write-off of obsolete or excess

inventories of $50,281. During 1995 and 1994, the Company recorded a
write-off of obsolete or excess inventories of $656,248 and $944,970,
respectively.

The inventory written off was military related. In management's opinion
these items will not be reordered in the foreseeable future.

INCOME TAXES

Income taxes are comprised of the following:

July 31,
-----------------------------------
1996 1995 1994
--------- ---------- --------
Deferred Income Taxes (Benefit) $ - $ (492,352) $ -
Current Income Taxes
Federal - - -
State 200 100 50
--------- ---------- --------
$ 200 $ (492,252) $ 50
========= ========== ========

Taxable income differs from financial statement income due to the effect
of non-deductible permanent tax differences. These permanent tax
differences include officer's life insurance premiums and non-deductible
entertainment expenses.

At July 31, 1996 the Company has a net operating loss carryforward of
approximately $2,968,000 for financial reporting purposes and
approximately $3,025,000 for tax purposes which is available to offset
future Federal taxable income. For Federal purposes, $490,000 of the
carryforward expires in 2003, $346,000 expires in 2008, $1,232,000 expires
in 2009 and $957,000 expires in 2010. For state purposes the carryforward
is approximately $2,187,000; $57,000 expires in 2000, $1,232,000 expires
in 2001 and $898,000 expires in 2002. Also, at July 31, 1995 the Company
has unused tax credits available of approximately $103,300 of which
$12,100 expires in 2000, $26,300 in 2001 and $64,900 in 2002.

The above net operating loss created deferred tax asset that has been
fully reserved. The amount is $1,185,209.

EXTRAORDINARY ITEM

On August 16, 1995 the Company's Bank debt was restructured resulting in
debt forgiveness of $1,232,728. This created a deferred tax asset at July
31, 1995 of $492,352. When the debt forgiveness occurred, the Company
wrote off its deferred tax asset against the forgiveness of debt,
resulting in extraordinary income of $740,376.

LEASES

The Company leases automobiles, machinery and equipment, and furniture and
fixtures under leases which expire over the next three years. The rental
payments are based on minimum rentals and charges for mileage in excess of
specified amounts for the automobiles. The leases for machinery and
equipment and furniture and fixtures contain a bargain purchase option
exercisable after the initial lease term.

F-8

<PAGE>

Conolog Corporation
Notes to the Financial Statements

LEASES (CONTINUED)

Property, plant and equipment include the following amounts for leases
that have been capitalized:

July 31,
-----------------------------
1996 1995
------------ -----------

Machinery and equipment $ 303,574 $ 322,239
Less allowance for amortization 263,832 248,013
------------ -----------

$ 39,742 $ 74,226
============ ===========

Lease amortization is included in depreciation expense.

Future minimum payments, by year and in the aggregate, under capital
leases consisted of the following as of July 31, 1996:

1997 $ 33,719
1998 5,050
--------
Total minimum lease payments 38,769

Less amounts representing interest (514)
--------
Present value of net minimum lease payments 38,255
Less, current maturities of capitalized lease obligations 33,282
--------
Long-term capitalized lease obligations $ 4,973
========

The Company leases various equipment under noncancellable operating leases
expiring through July 2000. Future minimum rental payments under the above
leases are follows:

Year Ended July 31,
1997 $ 7,659
1998 4,808
1999 4,808
--------
$ 17,275
========

Total rental expense for all operating leases of the Company amounted to
approximately $10,353, $11,447 and $16,850 during the years ended July 31,
1996, 1995 and 1994, respectively.

F-9

<PAGE>

Conolog Corporation
Notes to the Financial Statements

MAJOR CUSTOMERS AND EXPORT SALES

The following summarizes sales to major customers (each 10% or more of net
sales) by the Company:

Sales to
Major Number of Percentage
Year Ended Customers Customers of Total
----------------- -------------- -------------
1996 $ 401,840 1 21
1995 424,849 1 20
1994 597,000 1 29

During 1996 the Company had export sales of $401,840. In 1995 and 1994 the
Company did not have any export sales.

SUBSEQUENT EVENTS

On September 11, 1996, the Company entered into an allonge agreement with
the bank whereby the bank may at any time before April 15, 1997 convert
the then unpaid amount of principal and interest due under the Amended and
Restated Term Note dated as of August 2, 1995 in the original principal
amount of $1,025,000 into 1,400,000 shares of the Company's Common Stock
(the "Notes Shares"). The outstanding balance of the note and unpaid
interest as of August 26, 1996 was $1,077,988.

On September 12, 1996 the bank entered into an option and purchase, sale
and assignment agreement (the "Option Agreement") with CNL Holdings, Inc.
(CNL) whereby the bank would sell the Note Shares referred to above, along
with the 375,000 common shares of the Company it currently owns (the "Bank
Shares") for $1,500,000 to CNL.

On September 12, 1996 CNL entered into an agreement with the Company
whereby the Company would use its best efforts to file a Registration
Statement with the Securities and Exchange Commission covering the 375,000
Bank Shares and the 1,400,000 Note Shares (collectively the "Acquired
Shares"). Such Registration Statement shall be declared effective as soon
as possible after the filing thereof, and kept current and effective for a
period of two years or until such time as all shares registered pursuant
therewith have been sold or otherwise transferred. The proceeds of the
sale of the Acquired Shares shall be applied as follows: The first
$1,500,000 shall be paid to reimburse CNL for payments made to the bank
pursuant to the Option Agreement. Fifty percent of the balance of the
proceeds, not to exceed $2,500,000, shall be loaned to the Company by CNL.
The balance of the proceeds belong to CNL. The amounts loaned by CNL to
the Company shall be evidenced by notes which shall be due twelve months
after making such loan and shall bear interest at the rate of 4% per
annum. At maturity of the loans, the Company will have the option to repay
the loan balance and accrued interest by issuing a new Series C Preferred
Stock (the "Preferred Stock") valued at $5.00 per share. The Preferred
Stock will be non-voting and will carry a cumulative dividend of 8% per
annum, which may be payable by the issuance of shares of common stock
valued at $5.00 per share up to a maximum of 40,000 shares per annum.

F-10

<PAGE>

No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to make such offer or solicitation in such
jurisdiction.

-------------

TABLE OF CONTENTS

Page

Prospectus Summary................................................
The Offering......................................................
Summary Financial
Information.....................................................
Risk Factors......................................................
Capitalization....................................................
Dividends.........................................................
Selected Financial Information....................................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.......................................................
Market Price for Common Stock.....................................
Business..........................................................
Management........................................................
Certain Transactions..............................................
Principal Shareholders............................................
Description of
Securities.......................................................
Shares Available for
Future Sales.....................................................
Selling Securityholder and Plan of Distribution...................
Legal Proceedings.................................................
Legal Matters.....................................................
Experts...........................................................
Financial Statements..............................................

-------------

Until December 3, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

1,775,000 SHARES OF COMMON STOCK

CONOLOG CORPORATION

-------------

PROSPECTUS

-------------

November 8, 1996

-------------